Three Years Later, the SEC sues BitConnect over a $2 billion token sale.

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The SEC has shut down BitConnect.

Bitconnect, a crypto platform that was chastised by the crypto community for allegedly defrauding investors of $2 billion, has been sued by the US Securities and Exchange Commission more than three years after it was shut down.

The Securities and Exchange Commission is investigating not only BitConnect and its founder Satish Kumbhani, but also promoter Glenn Arcaro and his firm Future Money for violations of the Securities Exchange Act, which requires companies selling investment products in the United States to register with the SEC.

The SEC charged three BitConnect promoters earlier this year for receiving BCC tokens in exchange for soliciting new investors to the scheme. Defendants Joshua Jeppesen, Michael Noble, and Laura Mascola reached a settlement with the SEC in August for 190 Bitcoin (valued $9.25 million) and $3.5 million in cash. This is the first legal action taken by the United States against BitConnect’s management.

BitConnect, which launched in 2016, claimed to be a crypto-based lending program. Users would deposit Bitcoin and receive a loan of the platform’s native BCC coin, while its proprietary trading bot would reinvest it and spit out double-digit monthly returns. Only, there was no bot, says the SEC. Instead, the defendants allegedly operated a Ponzi scheme, skimming investor funds into their own crypto wallets and using fresh money to pay off early investors.

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And not just a small sum of money. The site raised 325,000 BTC, which was worth $2 billion at the time (it is now worth more than $15 billion).

The government is requesting that the United States District Court for the Southern District of New York require the defendants to refund all of the money and pay a civil penalty.

BitConnect shut down its lending platform in January 2018 after securities regulators in Texas and North Carolina issued cease-and-desist orders, and many began to suspect it was a hoax. Though BitConnect stated that the coin would continue to exist on crypto exchanges, it also stated that any monies in users’ loan wallets would be transferred to their BCC wallets at a rate of $363.62 per BCC, an average of the 15-day closing price at the time.

However, the beleaguered platform’s currency was rapidly losing value—and investors wanted to pay out the BCC in their wallets as soon as they received it. The exchange value of BCC had plunged to $29 on the same day of the announcement, after reaching as high as $425 just 10 days before.

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Though BitConnect, like other purported token scams, has faded from public consciousness, the SEC has not forgotten. It has taken action against a number of token projects and initial coin offerings this year, the latter of which was a popular way for cryptocurrency ventures to generate funds in 2017 and 2018.

 

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