About two weeks after the Department of Justice (DOJ) requested that the Court stays the civil case brought the Securities and Exchange Commission (SEC) against online crypto lending platform BitConnect, its founder Satish Kumbhani, and its top U.S. promoter and his affiliated company, the Court has granted the DOJ’s motion.
On December 15, 2021, Judge John G. Koeltl of the New York Southern District Court signed an order granting the DOJ’s motion to intervene and stay the SEC’s case.
According to the order, seen by FX News Group, pending resolution of the criminal matter captioned United States v. Glenn Arcaro, and the conclusion of the criminal investigation, the Civil Case proceedings are stayed and the Securities and Exchange Commission, defendants BitConnect, Satish Kumbhani, Glenn Arcaro, and Future Money Ltd., will not seek discovery in the Civil Case from one another or from third parties.
The DOJ has argued that a stay of proceedings is necessary to prevent the defendants from using discovery in the Civil Case unfairly as compared to discovery that would otherwise apply in the Criminal Case. A stay is further necessary to preserve the secrecy of the ongoing grand jury proceedings and to promote judicial economy.
According to the SEC’s complaint, from early 2017 through January 2018, the defendants conducted a fraudulent and unregistered offering and sale of securities in the form of investments in a “Lending Program” offered by BitConnect. The complaint alleges that, to induce investors to deposit funds into the purported Lending Program, Defendants falsely represented, among other things, that BitConnect would deploy its purportedly proprietary “volatility software trading bot” that, using investors’ deposits, would generate exorbitantly high returns.
However, instead of deploying investor funds for trading with the purported trading bot, defendants BitConnect and Kumbhani siphoned investors’ funds off for their own benefit by transferring those funds to digital wallet addresses controlled by them, their top promoter in the U.S., defendant Glenn Arcaro, and others.
The SEC’s complaint further alleges that BitConnect and Kumbhani established a network of promoters around the world, and rewarded them for their promotional efforts and outreach by paying commissions, a substantial portion of which they concealed from investors.
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.