ICO Era drives the application of crypto today

A federal grand jury in San Diego on Friday indicted the founder of crypto investment platform BitConnect for a variety of fraud, unlicensed money transmission and money laundering, nearly four years after the HBO’s “Last Week Tonight” host John Oliver pointed this out on a show. on the then booming cryptocurrency industry.

The Department of Justice alleges that BitConnect founder Satish Kumbhani orchestrated a $2.4 billion “global Ponzi scheme”.

Calling BitConnect an “alleged fraudulent cryptocurrency investment platform that has reached a peak market capitalization of $3.4 billion,” the DoJ said the Indian citizen and his “co-conspirators touted the alleged BitConnect’s proprietary technology… as being able to generate substantial profits and guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.

After shutting down BitConnect’s core lending program, Kumbhani “directed his network of promoters to fraudulently manipulate and support the price of BitConnect’s digital currency, a commodity known as BitConnect Coin, to create the false appearance of ‘a legitimate market demand’. the DoJ alleged in a Feb. 25 statement.

Crypto’s Reputation

It should be noted that BitConnect, which aggressively promoted itself on social media, had plenty of skeptics before Oliver took charge.

On November 30, 2017, Mike Novogratz – a former chairman of $54 billion hedge fund Fortress Investment Group who rose to become a top cryptocurrency investor as CEO of crypto merchant bank Galaxy Digital – tweeted: “BitConnect really looks like a scam. an old school ponzi… bad actors hurt the community. period.”

It was retweeted by Ethereum creator Vitalik Buterin a month later, shortly after the BitConnect Coin cryptocurrency hit an all-time high of over $450.

That’s, pretty much, what Oliver alleged in his March 12, 2018 episode on cryptocurrencies, which took a very bleak and high-profile view of the industry.

“There are dodgy companies everywhere, some looking like old fashioned frauds with crypto sauce poured over them,” Oliver said. “Take BitConnect. At one point it was worth around $3 billion. Now BitConnect has told investors that if they hand over the money, they’ll immediately get returns of up to 40% per month. Now a rate of Yield that high might sound suspicious to you, but the market was skyrocketing and BitConnect had investors like this guy speaking at one of the conferences.

It was then that Oliver showed a clip of a man identified as BitConnect investor Carlos Matos – who has not been charged or accused of wrongdoing – on stage at a corporate event in Thailand. in 2017, a performance that turned into an internet meme so popular it’s thought to have caught the attention of the DoJ in the first place.

It’s worth a look, not so much because of the fraud allegations against BitConnect, but to understand the hype that has surrounded even some of the most legitimate and successful companies in the industry. of cryptocurrency during the first “Crypto summer” of 2017 – before the Securities and Exchange Commission dropped the initial coin offering (ICO) market like a ton of bricks from 2018.

See also: SEC remains focused on cryptocurrency enforcement and imposes $2 billion in fines in 2021

It’s also worth watching Oliver’s decision to turn to comedian Keegan-Michael Key for a parody of Matos in which Key warned that “the cryptocurrency market is extremely volatile and insufficiently regulated” and advised “never to invest more than you are ready to lose”. ”

Defile the crypto

“Crime, particularly crime involving digital currencies, continues to transcend international borders,” said Assistant Attorney General Kenneth Polite Jr. of the DoJ’s Criminal Division. “The department is committed to protecting victims, preserving market integrity, and strengthening its global partnerships to hold accountable criminals who engage in cryptocurrency fraud.”

The indictment also accuses Kumbhani of operating a money transmission business through his digital currency exchange, BitConnect, without registering with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), as required. bank secrecy law.

This is not the first criminal case brought against the promoters of BitConnect. On September 1 last year, the DoJ announced that Glenn Arcaro had pleaded guilty to fraud charges due to his involvement with BitConnect.

Read more: BitConnect Exec Admits Role in Alleged $2 Billion Crypto Fraud

The SEC announced the same day that it was suing Arcaro, Kumbhani and BitConnect, alleging that “from early 2017 to January 2018, defendants conducted a fraudulent and unregistered offer and sale of securities by way of investments in a” loan program” offered by BitConnect.

On February 25, the DoJ charged Kumbhani with “conspiracy to commit wire fraud, wire fraud, conspiracy to manipulate commodity prices, operate an unlicensed money transfer business and conspiracy to commit international money laundering”.

Kumbhani, who remains at large, faces up to 70 years in prison if convicted on all counts.

In announcing the indictment, Eric Smith, Special Agent in Charge of the FBI’s Cleveland Bureau, noted that schemes like the one Kumbhani allegedly committed have the effect of “tarnishing the ability of legitimate entrepreneurs to innovate in the emerging cryptocurrency space”.



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