More than two months have passed since the United States Securities and Exchange Commission (SEC) launched an action against BitConnect, an online crypto lending platform, its founder Satish Kumbhani, and its top U.S. promoter and his affiliated company, alleging that they defrauded retail investors out of $2 billion. Today, it turned out that the SEC still does not know the whereabouts of Kumbhani.
This becomes clear from a status update filed by the regulator with the New York Southern District Court. The document, seen by FX News Group, says that the SEC has learnt that Kumbhani had likely relocated from India to an unknown address in a different country. The Commission has sought assistance from that country’s financial regulatory authorities in locating Kumbhani, so that the Commission may serve him, and Bitconnect through him.
The Commission has not yet received any such address and is unable to estimate how long it will take to obtain one.
Although the 90-day time limit for service of process under Federal Rule of Civil Procedure 4(m) does not apply to service in a foreign country, the SEC says it cannot rule out the possibility, contrary to the current information, that Kumbhani and BitConnect are in the United States. For that reason, the Commission requests that the Court extend the its time to serve Kumbhani and BitConnect for a period of 90 days, from November 29, 2021, to February 28, 2022, in case they turn out to be in the United States.
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.