SEC Announces Charges in Alleged $2B Cryptocurrency Scam

Chris Gaetano
Published Date:
Sep 2, 2021

The Securities and Exchange Commission (SEC) filed charges against a cryptocurrency lending platform and its executives for allegedly running a scam that  defrauded retail investors out of $2 billion. 

The company, BitConnect, is alleged by the SEC to have conducted a fraudulent and unregistered offering and sale of securities in the form of investments in a "Lending Program" it offered to customers. Those that deposited assets into this program were promised that the company would use a trading bot that could use investor funds to generate returns as high as 40 percent a month. However, according to the complaint, the funds were instead transferred to the company's executives as well as a worldwide network of promoters, who received commissions based on the business they drummed up.

In order to conceal the purported sham, the company regularly posted fake returns on its website that, on average, amount to 1 percent a day or about 3,700 percent a year, a highly unusual rate of growth even for cryptocurrency. Functionally, the whole thing was a Ponzi scheme in which at times the company used funds deposited by newer investors in order to satisfy withdrawal demands made by earlier investors. 

Through this scheme, the SEC said, the group made off with $2 billion worth of Bitcoin from their customers, of which $24 million went to the unlicensed promoters. 

"We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets," said Lara Shalov Mehraban, associate regional director of SEC's New York regional office. "We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space."

The SEC's complaint charges the defendants with violating the antifraud and registration provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement plus interest, and civil penalties. The SEC previously reached settlements with two of the five individuals it charged in a related action for promoting the BitConnect offering. In a parallel action, the Department of Justice  announced that Glenn Arcaro, a top promoter of BitConnect, has pleaded guilty to criminal charges.

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