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Roughly 800 victims of the infamous BitConnect scheme will soon see a portion of $17 million in restitutions per a ruling in a court in California.
Per the US District Court for the Southern District of California ruling on Thursday, BitConnect was a purported crypto lending platform that touted proprietary technology including the “Bitconnect Trading Bot” and “Volatility Software” that claimed it would net investors guaranteed returns.
“In truth, however, BitConnect operated a textbook Ponzi scheme by paying earlier BitConnect investors with money from later investors,” reads the U.S. Department of Justice's press release.
Glenn Arcaro, the U.S.-based promoter for BitConnect, pleaded guilty to conspiracy to commit wire fraud in September 2021 and was sentenced to 38 months in prison a year later.
Prior to that, in November 2021, the DOJ announced it would sell $56 million worth of cryptocurrency seized from Arcoro to compensate victims of the fraud.
In February 2022, the DOJ then revealed an indictment against the project’s founder Satish Kumbhani—who is still at large—accusing him of obtaining approximately $2.4 billion from investors in a Ponzi scheme.
The government is charging Kumbhani with conspiracy to commit wire fraud, conspiracy to commit commodity price manipulation, operation of an unlicensed money transmitting business, and conspiracy to commit international money laundering.
The Bitconnect crypto fraud
Launched in February 2016, BitConnect used a multi-tier pyramid structure to reward investors based on the number of affiliates they brought into the program. BitcConnect’s own token, BCC, was the world’s eighth most valuable coin in October 2017 and boasted a market cap of almost $2.6 billion by the end of that year.
The project promised average daily returns of one percent, implying the possibility of turning $1,000 into $36,000 in one year.
Many prominent figures, including Litecoin creator Charlie Lee, Ethereum inventor Vitalik Buterin, and Digital Galaxy’s Mike Novogratz, repeatedly warned about the dangers of the project, with the latter calling BitConnect an “old school Ponzi.”
— vitalik.eth (@VitalikButerin) December 1, 2017
BitConnect collapsed in 2018 when regulators caught onto the project, forcing it to shut down. Investors eventually got their BCC tokens back, but by that point, the coin had collapsed from its all-time high of around $500 to less than $1.
The U.S. Securities and Exchange Commission separately sued BitConnect in September 2021, almost three years after the project’s closure.