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The U.S. Justice Department will sell $56 million worth of seized cryptocurrency from the "number one promoter" of the crypto Ponzi scheme BitConnect to compensate victims of the fraud.
Per an announcement from the U.S. Justice Department, the government will sell the cryptocurrency and hold the proceeds in U.S. dollars, ahead of using the proceeds to "provide restitution to the victims pursuant to a future restitution order by the court at sentencing."
The cryptocurrency was seized from Glenn Arcaro, 44, who pleaded guilty to participating in a $2 billion conspiracy to defraud BitConnect investors. Arcaro will be sentenced on January 7, 2022, and faces a maximum penalty of 20 years in prison.
Potential victims of the BitConnect scheme are encouraged to visit a justice.gov website for information on their rights, to identify themselves as a victim, and submit a victim impact statement.
What was BitConnect?
One of the most infamous crypto scams of all time, BitConnect billed itself as a cryptocurrency investment platform that offered huge returns based on its proprietary trading bot. In fact, the bot didn't exist; it was a Ponzi scheme that rewarded participants based on the number of people that bought into the scheme.
Propped up by the pyramid scheme, BitConnect's BCC cryptocurrency rose to become one of the 20 biggest cryptos by market cap, valued at around $400.
Following investigations from regulators in Texas and North Carolina, BitConnect shut down its lending and exchange platform, prompting a collapse in the price of BCC to under $30.
In May 2021, the U.S. Securities and Exchange Commission charged five BitConnect promoters, reaching a $12 million settlement in August. A month later, the SEC sued BitConnect, its founder Satish Kumbhani and Arcaro, in the first action against BitConnect's management.
U.S. government crypto seizures
This isn't the first occasion on which the U.S. government has sold off seized cryptocurrency.
In 2014, the U.S. Marshals sold off over 30,000 Bitcoin (then worth around $19 million) seized from the defunct dark web marketplace Silk Road. It was scooped up by venture capitalist Tim Draper, whose haul is now worth over $1.8 billion.
The U.S. Marshals sold another 4,000 BTC of seized Bitcoin in February 2020. Then worth around $37 million, its value has since shot up to over $240 million.