Crypto-coin startup said its bot could generate huge profits from your Bitcoin. It was a scam, says SEC

Cryptocurrency startup BitConnect and two men have been sued by America's financial watchdog, which claims the now-defunct biz swindled investors out of billions by lying to them about an automated trading bot that could reap huge profits. BitConnect founder Satish Kumbhani, 35, and promoter Glenn Arcaro, 44, are accused of …

[Mike 137]

"All investors had to do was hand over their Bitcoin..."

Oh, the joys of unregulated financial services. Regulation was brought in over 100 years ago specifically to prevent this kind of scam (bankers making off with their clients' money). Now we apparently approve of reverting to the previous free for all.

"It must be OK because it's digital".

[tfewster]

Re: "All investors had to do was hand over their Bitcoin..."

The digit usually being zero, or the Digitus Impudicus.

[The Man Who Fell To Earth]

Re: "All investors had to do was hand over their Bitcoin..."

It's like the Sharecropper Economy of Uber, Airbnb & Lyft. Having your sharecroppers shoulder all of the Capitalization and Operational burdens & risk while you just skim the cash flow is just great. For you.

[vtcodger]

Re: "All investors had to do was hand over their Bitcoin..."

"It's like the Sharecropper Economy of Uber, Airbnb & Lyft. Having your sharecroppers shoulder all of the Capitalization and Operational burdens & risk while you just skim the cash flow is just great. For you."

Well, Yes. But the last I looked, Uber and Lyft have somehow been losing money hand over fist for years. One wonders how they accomplish that. Seems to me to be something that most folks would find difficult or impossible to do.

[Anonymous Coward]

Re: "All investors had to do was hand over their Bitcoin..."

Because they pay themselves shit loads of money, create other companies that they own, pay them to do stuff, and then as they no longer make a profit, get tax breaks allowing them to pay themselves even more.

[MachDiamond]

Re: "All investors had to do was hand over their Bitcoin..."

"Well, Yes. But the last I looked, Uber and Lyft have somehow been losing money hand over fist for years. One wonders how they accomplish that. "

What's old is new again. Remember the DotCom boom and crash in the 80's? It just takes a good story and flashy CGI. Financial fundamentals and profits aren't required anymore. Look at all of the companies with no P/E or in the hundreds that people are excited about. I especially like when they say that the company isn't showing a profit because they are plowing all of the money back in to the company. Not only have they been bamboozled, they don't know anything about accounting either. ... And they're allowed to invest their hard earned money without adult supervision. It's not limited to individuals either. Investment funds are willing to take huge amounts of risk without proper due diligence.

[doublelayer]

Re: "All investors had to do was hand over their Bitcoin..."

It works because they went to some rich investors and spun them a tale where their company is the only one that can provide some service. They get that power by offering very low prices until everybody else goes out of business and ruthlessly buying anyone who looks to be competing still. The theory is that they'd eventually get their monopoly, send the prices through the roof, and cash in. Investors listen to this, think about real monopolies, immediately stop thinking, and turn on the money line.

What those investors don't usually think about is how the monopolies that exist manage to keep that power, especially keeping in mind the barriers to entry which often don't apply to these companies' ideas. The leaders of the companies don't mind; they get a company to play with, a bunch of money to waste, a healthy salary, and a nice exit package when things finally go wrong. Some may run this as a scam, others are clueless, and still others actually have an idea that could work and try for it.

[DS999]

Why do you think

Wall Street has become interested in crypto over the last couple years? They see new sheep to fleece, and none of the usual rules they have to live by. Granted, they aren't quite so brazen as these guys, but the end result will be the same.

[teknopaul]

Re: Why do you think

Maybe not. 2017 saw a lot of this kind of scam and the sec has been catching up with them and they are getting jail sentences. El Reg has had a steady trickle of these articles.

There is nothing special about bitcoin that makes it better for a ponzi scheme, except in 2017 there was a lotta suckers out there. With bitcoin every transaction you do is traceable, you can't hide a penny.

I'm sure the sec has a limited capacity for follow up of these crims but they will all be got. Wall Street knows that, it has better was to shovel around ill gotten gains.

[MachDiamond]

Re: "All investors had to do was hand over their Bitcoin..."

"It must be OK because it's digital".

It's more like: "It's way better because Blockchain".

[Steve K]

Ironic

It's ironic that if the investors had simply sat on their BitCoin and done nothing they would have made more, given the time period....

[Anonymous Coward]

A Crypto Scam?

Colour me surprised.

[Chris G]

I an offer

Sounds too good to be true. Usually it is.

The success in schemes like this cheating people out of huge sums of money is a testament to greed and stupidity often going hand in hand.

To go with the mugs, is a never ending supply of scumbags willing to take advantage of them.

[The Man Who Fell To Earth]

Re: I an offer

But but but...

They were told it used AI, so it must be magical.

[katrinab]

Re: I an offer

And blockchains, so it must be secure

[vtcodger]

Re: I an offer

Dishonesty in the cryptocurrency sector? Who could possibly have anticipated that?

And while we're here. Isn't anyone the slightest bit interested in where the investor's money went? Personally, I think it will eventually be found in a hollow tree trunk on or near a property owned by one of the principals.

[The Man Who Fell To Earth]

Re: I an offer

"Kumbhani’s current whereabouts, however, are unknown."

Maybe I am being presumptuous, but I would hope someone is looking for him and some mobsters haven't already ripped him off and left him in a shallow grave.

[MachDiamond]

Re: I an offer

"Maybe I am being presumptuous, but I would hope someone is looking for him and some mobsters haven't already ripped him off and left him in a shallow grave."

The more money you have, the easier it is to disappear if you know what you are doing. The locals don't pry to much into somebody's bone fides if they are generous. It would be like butchering the goose that lays the golden eggs. There are lots of lovely places in the world off of the beaten path where one can live like royalty on a very modest budget. One needs to forgo the Ferrari and solid gold loo. Those sorts of things tend to attract too much attention.

[JWLong]

This just makes me ...........

LAUGH..................

I can't stop..........

I need to invent something intangible and sell it for 10's of thousands of dollars.

Welcome to the new world order.

[Dante Alighieri]

Purchase enquiry

I would like to purchase the NFT of your above post.

If you could confirm your bank details with a £100 transfer, I will immediately return the funds 1000 fold as this will cover the bank admin fees to release the £100,000 to you.

You will be contacted shortly by our Nigerian head office to discuss further opportunities.

[vtcodger]

Re: This just makes me ...........

Rather than inventing something -- which might be a lot of work -- how about an NFT covering something of undeniable value -- the Gold purported to be stashed in Fort Knox? Or the Night Watch painting by Rembrandt (which, unlike the Fort Knox gold has actually been seen recently by reliable observers)?

But isn't the lack of ownership a problem? Of course not. This is the 21st Century. The digital age. We are no longer shacked by quaint, old-fashioned concepts such as ownership. Just conjure up that NFT and get out there and peddle it before our culture moves on to the next fad.

[FrogsAndChips]

Let's see if I get this right

They took 325000 BTC from their clients, now worth $16bn (the BTC, not the clients).

They agreed to return $24 mil.

Err, what happened to the remaining $15,976,000,000??

[Man inna barrel]

Re: Let's see if I get this right

> Err, what happened to the remaining $15,976,000,000??

It disappeared. It was never there in the first place. Money is all just promises anyway. It isn't real. However, I do have some faith that the money my employer pays me can be used to pay my bills, so I guess the stuff works in practice, when people want it to.

[Anonymous Coward]

One born every minute

40% return per year would be hard to believe, 40% per month is so ludicrous that anyone who invested needs to have their head seen to.

[MachDiamond]

Re: One born every minute

"40% per month is so ludicrous that anyone who invested needs to have their head seen to."

and put in protective custody.

[scrubber]

Re: One born every minute

Unless they know it's a scam and are willing to take the chance that it lasts for over 3 months when they can take back their stake and ride the wave for as long as possible, taking out some "profits" every now and then.

[Jon 37]

Re: One born every minute

Agree.

You don't even have to wonder too much about what kind of scam it is. At 40% per month it's clearly a Ponzi scam.

[Anonymous Coward]

If you must ...

Invest in crypto, for whatever reason, I would look into unit trusts. These are stocks that buy crypto and sell SEC regulated shares on the Over The Counter (OTC) market. You can find single currency trusts and bundled currencies trusts.

While there are disadvantages, one advantage is that they are much less susceptible to fraud.

They are still susceptible to the whims of the crypto markets, for bad and good returns. It's purely speculative and you shouldn't rely on them for your retirement.

Note: I'm not a financial professional or advisor, just a retired IT guy. I have less than 1% of my portfolio in one of these for fun.

[redpawn]

Re: If you must ...

"for fun" is the important part, like buying lottery tickets, not an investment.

[fpx]

Too bad I missed this opportunity. At 40% a month, I would have started with a $10 investment, and then I would have cashed out $1 after the first month, $1.40 the second month and so on.