The founder of the now-defunct crypto exchange BitConnect is being sued for a US$2 billion “textbook Ponzi scheme” by the U.S. Securities and Exchange Commission, according to a Reuters report.

Fast facts

  • The SEC alleges BitConnect’s founder Satish Kumbhani, an Indian citizen, lied about the exchange’s ability to earn 40% returns on investments of BitConnect’s native cryptocurrency token through the use of a “volatility software trading bot,” when no such bot existed. In a separate lawsuit, promoter Glenn Arcaro has also been charged by the SEC for receiving more than US$24 million in referral commissions through BitConnect.
  • Five individuals had already been sued in relation to the same alleged fraud in charges brought by the SEC in May.
  • This enforcement action comes as SEC chair Gary Gensler warns the crypto industry “won’t last long outside” regulatory framework, in a recent article in the Financial Times. While insisting he remains “technology neutral,” Gensler suggested some in the industry were refusing to play ball with regulators, which could cause further trouble down the road.
  • “Talk to us, come in,” he told the Financial Times. “There are a lot of platforms that are in operation today that would do better engaging and instead there is a bit of  . . .  begging for forgiveness rather than asking for permission.”
  • Gensler has been taking a progressively more hardline stance on regulating the crypto industry, recently suggesting stablecoins should be treated as securities, and subject to the same laws that apply to the assets that underpin them. In a recent correspondence with U.S. senator Elizabeth Warren, who heads the Senate Banking Committee’s Subcommittee on Economic Policy, Gensler admitted he thought crypto investors were “not adequately protected” by existing regulation.