The United States Department of Justice (DOJ) today filed a motion to intervene in a civil lawsuit brought by the Securities and Exchange Commission (SEC) against BitConnect, an online crypto lending platform, its founder Satish Kumbhani, and its top U.S. promoter and his affiliated company.
According to the documents submitted today at the New York Southern District Court, the DOJ seeks to intervene in the civil case and stay civil proceedings because of the pendency of a parallel criminal case and a related, ongoing grand jury investigation. The same underlying facts are at issue in both the Civil and Criminal Cases.
A stay of proceedings is appropriate, the DOJ argues. The motion is timely, and the same alleged fraudulent scheme is at issue in both the Civil and Criminal Cases.
Moreover, 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.
Accordingly, the United States respectfully requests that the Court: (1) permit the United States to intervene; and (2) order, pursuant to the Court’s inherent power, that proceedings in the Civil Case be stayed until the conclusion of the related Criminal Case and the ongoing grand jury investigation.
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.
Defendants Glenn Arcaro and Future Money, Ltd. have each advised the United States through his and its counsel that neither object to entry of the requested order to stay the Civil Case. Defendant Satish Kumbhani was last known to reside in India, but his precise current location is unknown. Defendant Kumbhani has not made an appearance in the Civil Case, and therefore has not taken any position as to the Civil Case. Nor has defendant BitConnect appeared in the Civil Case. The United States has consulted with the SEC, which takes no position on this motion.