Following its case against Ponzi scheme BitConnect, the United States Department of Justice will sell $78 million AUD worth of seized Bitcoin.
Largest recovery of a crypto fraud
The Justice Department announced last week it would sell seized cryptocurrency and keep the proceeds until it had figured out how to provide restitution to BitConnect victims. In what is the “single largest recovery of a cryptocurrency fraud by the United States to date,” the government is currently holding the $78m AUD confiscated in crypto wallets and waiting for a “future restitution order by the court at sentencing.” How the U.S. would handle the sale of these assets or what effect that would have on prices is unclear.
The Bitconnect case
Bitconnect was founded in January 2017 with the promise of high interest rates for “helping maintain the security of the network.” Users had to send bitcoin to Bitconnect to get the Bitconnect Coin (BCC) and receive “up to 120 percent return per year.”
Although many suspected Bitconnect to be a Ponzi scheme right from the beginning, it took a whole year for the entire endeavour to come crashing down. The project’s former director and promoter, Glenn Arcaro was eventually found guilty of fraud and was ordered to pay $30 million AUD to its victims. In total, BitConnect defrauded unsuspecting customers of over $2 billion AUD. The Securities and Exchange Commission also pressed charges against Satish Kumbhani, BitConnect’s founder, although Kumbhani vanished following the inevitable crash of his fraud scheme and has not been tracked down to this date.
Australian authorities also cracked down on BitConnect frauds
The fallout of the BitConnect scam was not limited to the United States only, though. Last year, the former Australian national representative of BitConnect, John Louis Anthony Bigatton, was charged by the Commonwealth Director of Public Prosecutions with misleading statements leading to market manipulation, operating an unregistered managed investment scheme and providing unlicensed financial services. Although his case is still pending, he is facing up to 10 years in prison for his market manipulation alone, with the other charges carrying penalties between two and five years. That would effectively land the 52-year-old in prison for the rest of his life.
Another day, another scam
Nowadays, hardened crypto investors just shrug off news of existing or new cases of crypto frauds, as these have become part and parcel of cryptocurrency investing. While BitConnect may have the biggest sum of money ever recovered by authorities, it is not one of the biggest crypto scams. That questionable honour goes to the infamous Mt. Gox collapse, even though this is seen as more of a hack, that saw billions of bitcoin vanish into the proverbial ether.
While some BitConnect and Mt. Gox victims are lucky enough to get a part of their money back, investors are well-advised to take precautions and not rely on exchanges or other external actors for security. Although practices like two-factor authentication, hardware wallets, and secure passwords are well-known best practices, not enough users actually practice what is preached. As long as investors keep making it easy for scammers, the BitConnects of this world will find a way to keep their Ponzi schemes going.