BitConnect Episode 4: Fraud Is a Flat Circle

"Crypto Crooks" is sponsored by Chainalysis.

BitConnect’s nefarious tentacles reached across the world. So did the impact of its downfall and the fates of its architects.

In our season finale, we take stock of the BitConnect saga, from the legal fallout to the implications for crypto at large. We also take one last glance backward to think about why it all happened … and whether there might have been an invisible hand pulling the strings.

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“Crypto Crooks” is a CoinDesk Podcast Production. The executive producer is Jared Schwartz, with additional production by Eleanor Pahl, Rob Mitchell, Nora Battelle, Jonas Huck, and Moon Beast. Fact-checking is by Amber Von Schassen, and sound design and music are by Altus Noumena. This show is written and voiced by David Z. Morris.

Audio Transcript: This transcript has not been edited and may contain errors.

DAVID Z. MORRIS:

The BitConnect ponzi scheme collapsed in early 2018, taking billions of dollars with it. It’s a common saying that time moves faster in crypto, and a mere five years later, that enormous loss is barely a memory for many cryptocurrency users and advocates.

And sadly, the scale of the BitConnect fraud pales in comparison to more recent alleged crypto frauds. Take Celsius, which declared bankruptcy owing its users at least $4.7 billion. And especially Luna, the fake stablecoin system, which destroyed somewhere between $17 and $40 billion dollars depending on how it’s measured.

We’ll get around to Luna creator Do Kwon very soon. But the lessons of BitConnect are as relevant today as ever – just as the lessons of Enron, Bernie Madoff, and Charles Ponzi himself remain important for investors who don’t want to get ripped off. In fact, Celsius and other “lending platforms” looked very similar to BitConnect, with their promises to deliver outsized returns by trading and lending users’ crypto deposits.

BitConnect holds another important lesson for investors and fraud watchers. Even five years after its collapse, with widespread and clear evidence of a global criminal conspiracy, some of the biggest suspects have evaded justice. Some, like promoter John Bigatton, are still waiting for court dates as regulators and law enforcement agencies build their cases. Others, including BitConnect founder Satish Kumbhani, are on the run, their whereabouts unknown.

Today, we look at the methodical, often slow progress of justice. We also pull at one final thread: the ominous connections between BitConnect and India’s ruling party, the conservative Bharatiya Janata Party, or BJP. A local former BJP politician allegedly played a role in the convoluted kidnapping scheme we covered in Episode 1. But Indian opposition leaders have alleged that those connections may go much deeper.

That’s another timeless truth about fraud: just when you think you’ve gotten to the bottom of it, you may find it goes deeper than you could ever imagine.

Welcome to Crypto Crooks, Season 1: BitConnect. Today, we present Episode 4: Fraud Is a Flat Circle

Hello and welcome to Crypto Crooks, a new podcast from CoinDesk. Today we close out our first season, which has focused on BitConnect, a Ponzi and pyramid scheme that collapsed in early 2018. It’s a tale with a lot of lessons to teach – lessons that more recent crypto collapses suggest we still haven’t quite learned.

I’m your host, David Z. Morris, CoinDesk’s Chief Insights Columnist. I’ve been reporting on cryptocurrency since 2013, and I’ve followed it because I believe it will profoundly transform how we live. But I’ve also watched as the promise of crypto has been repeatedly threatened by a constant stream of con-men and hucksters preying on the uninformed, the naïve, and the desperate. Over the years, I’ve seen the same shady tactics, bad ideas, and deceptive rhetoric again and again.

We’re launching Crypto Crooks to share historical insights, in hopes of protecting crypto investors from getting taken in. Each short season of the show will focus on a different major fraud, crime, or bad idea that fleeced investors and the industry. Because while cryptocurrency is a radical new technology, fraudsters aren’t quite so innovative.

Part 1: Truth and Consequences

“The wheels of justice grind exceedingly slow, but they grind exceedingly fine.”

That saying dates back as far as the 2nd century Greek philosopher Sextus Empericus, whose work survived the middle ages as an exemplar of the school of thought known as skepticism – a mindset that is, among other things, still one of the best ways to protect your money from scammers.

Those wheels ground fine indeed over Glenn Arcaro, BitConnect’s top U.S. promoter. On September 16th of 2022, he was sentenced to 38 months in prison for his role in BitConnect. Arcaro will forfeit no less than $24 million dollars, some of it in restitution to victims.

As U.S. Attorney Randy Grossman explained the sentence, “Putting a technical sheen on a vintage scheme will not stop this office’s pursuit of a just outcome.”

In the course of their prosecution, Justice Department officials also seized $56 million worth of Bitcoin from Arcaro. That may be different from Arcaro’s claimed earnings because the Bitcoin appreciated between 2017 and the seizure’s announcement in November of 2021. Justice announced that they would sell that Bitcoin to compensate BitConnect victims – but that’s a tiny drop in the bucket of the $2.4 billion in total losses estimated by the DOJ.

It’s important to note that, as the Department of Justice acknowledges, Arcaro consented to the seizure, probably as a condition of a plea deal. That means he likely provided the private keys to access the coins. This is often the case when Bitcoin is seized from people in custody or under investigation. Without those keys, even a court order isn’t in itself enough to seize bitcoin.

Arcaro’s sentencing should be fair warning for others who had a hand in the BitConnect cookie jar. Trevon James and Craig Grant were believed to have reported to Glenn Arcaro in BitConnect’s Pyramid structure. They were charged with marketing an unregistered security by the SEC in May of 2021, alongside three other players: Ryan Maasen, Michael Noble, and Joshua Jeppesen. Those are less serious charges than Glenn Arcaro’s fraud conviction, but would likely still require them to give up much or all of their earnings from BitConnect.

Trevon James and Craig Grant have responded to that investigation in very different ways. Trevon maintains that he was never aware he was promoting a scam, and in fact he is still actively promoting cryptocurrencies on YouTube — including projects which have attracted significant skepticism from reputable crypto experts.

For instance, Trevon was for many months a big promoter of Hex, which veteran crypto investor Eric Wall has essentially argued is a sham; it has lost more than 80% of its market value since December of 2021.

There’s another twist to Grant and Trevon’s stories. Around November 15 of 2017, Craig Grant posted a video, since deleted, claiming a hacker had stolen around 70 bitcoin from him. Those would have been worth over half a million dollars at the time, and much more now. Just over a week later, Trevon James ALSO posted a video claiming he lost 111 Bitcoin in a hack. They would have been worth nearly a million dollars at the time, but as many viewers of his announcement noted, Trevon was remarkably calm about the loss.

These hacks may have been real. They could have all happened at the same time because of the various connections between the promoters. But a skeptic might wonder if this was an attempt by Trevon James and Craig Grant to avoid paying massive fines for their role in BitConnect…

And Craig Grant in particular would have likely wanted to hide funds from law enforcement. Because while Trevon James has maintained his presence on YouTube, Grant has responded quite differently to the charges against him.

SHAFFER:

“Craig Grant was aware they were going to file a lawsuit against him so he actually fled to Jamaica. I believe some organization within the government sent investigators down there to find him, and they were not able to do that … Apparently he’s like living out in the wilderness somewhere … and probably will never come back to America … His wife still lives in America and apparently, Craig Grant abandoned his wife and his children here in America. My actual belief is that I think that he’s still sending her money through cryptocurrency from Jamaica.”

DAVID:

That’s Scott Shaffer, an independent investigator who tracked Grant and other promoters in the wake of the BitConnect collapse through his YouTube channel CryptoJedi.

That may seem like Grant is getting away with something. But life as a fugitive is often a punishment in its own right. Among other consequences, Grant can never return to the United States without risking immediate arrest.

And remember Crypto Nick, the teenage BitConnect promoter who allegedly reported to Trevon James?

SHAFFER:

“After BitConnect went down, Crypto Nick was actually probably one of the smartest. And he actually just deleted his channel, deleted all of his videos, and pretty much disappeared off of YouTube. And no one really knows what happened to him …. Because he was a minor … when BitConnect went down, I don’t think the SEC or anyone went after him hard, as far as I know.”

DAVID:

Any good lawyer will tell you that keeping quiet is a good idea when you’ve been involved in a crime.

Then, of course, there’s John Biggaton, still awaiting a trial in Australia that could reveal new details about his wife Madeline’s apparent suicide.

Many of the players in BitConnect, then, will face justice for their actions. Others will escape it only by retreating into permanent exile.

But we still don’t know the fate of some of those closer to the center of the con - alleged BitConnect founder Satish Kumbhani, and his allies in Gujarat.

Part 2: The Gujarati Connection

So what happened to the founder of BitConnect, and his apparent inner circle?

Some of the Indian operators have been apprehended - at least temporarily. A man named Divyesh Darji was arrested in 2018 and accused of heading BitConnect’s promotion in India. But in 2019, after being granted bail, Darji fled, and does not seem to have resurfaced since. Dhaval Mavani, the BitConnect developer who Shailesh Bhatt was accused of kidnapping and extorting in 2018, was extradited from Abu Dhabi in 2019 to face fraud charges in India.

We talked about Shailesh Bhatt and his strange kidnapping and extortion scheme in Episode 1. Bhatt, remember, reported that he had been targeted by extortionists, but Indian investigators eventually discovered that he himself had been trying to extort BitConnect executives after the scheme collapsed.

One member of the confusing cast of players may be more important than he seemed: a man named Nalin Kotadiya. Kotadiya was a former Gujarat state legislator and member of Nehrendra Modhi’s BJP. Investigators claimed that Kotadiya used local police officers to intimidate Shailesh Bhatt.

If these allegations are true, why would a former BJP politician be involved in an attempt to intimidate Shailesh Bhatt? Whatever his own crimes, after all, Bhatt was the victim of a massive financial fraud. Was Kotadiya protecting someone?

Similar oddities hover around accused BitConnect mastermind Satish Kumbhani.

In September of 2021, Kumbhani was indicted for securities fraud by the U.S. Securities and exchange commission, alongside Glen Arcaro. (Arcaro, remember, has already been sentenced to prison time for different charges from the Justice Department – justice grinds on.)

In February of 2022, parallel charges for Kumbhani arrived from the Justice Department. The DOJ says that BitConnect attracted a total of $2.4 billion from 4,154 victims in 95 countries around the world.

But wouldn’t you know it? Just a few months after these charges were filed, the SEC announced that Khumbani had disappeared.

In a filing, SEC attorney Richard Primoff said that Kumbhani “has likely relocated from India to an unknown address in a foreign country,” and that the SEC “has been consulting with that country’s financial regulatory authorities in an attempt to locate Kumbhani’s address.”

It seems the SEC had an idea what country Kumbhani was in, but couldn’t find his exact location. According to Primoff, the SEC couldn’t say “when its efforts to locate him will be successful, if at all.”

The SEC doesn’t file those sorts of charges frivolously, and they probably know more about Khumbani than has reached the public so far. Still, there are a few nagging details that make me at least slightly skeptical of that official narrative.

Some of them are purely subjective, so let’s call it a hunch – what if there’s someone behind Khumbani?

We already know he didn’t work alone, obviously. BitConnect was a huge global operation. But people like Glenn Arcaro, John Biggaton, and Trevon James were quite literally beneath Khumbani in BitConnect’s structure.

But what if there was someone above Satish Khumbani? Not just above him on the BitConnect pyramid - but above the pyramid entirely?

Some doubt arises from Kumbhani himself. In his handful of recorded public appearances, he often seems quiet, maybe even nervous, unlike the smooth, image-conscious talkers who usually head up successful financial frauds. Maybe he was simply self-aware about his own shortcomings as a spokesperson, leading to the decision to recruit people like Bigatton and Arcar

But there’s another explanation: What if Khumbani was a frontman intended to take the fall for a scam actually masterminded by someone else?

There’s precedent for this, even within the world of cryptocurrency scams. Ruja Ignatova was the face of a very similar con called OneCoin, which has been covered in amazing depth by the BBC’s Jamie Bartlett. Much like Kumbhani, Ignatova seemed to entirely disappear after regulators cracked down on her scam.

But Ruja’s brother, Konstantin Ignatov, pleaded guilty to his role in the OneCoin fraud, and has cooperated with authorities in related legal cases. In 2019, he reportedly said that his cooperation could "reveal activities of individuals who might use violence" against him.

That aligns with mounting evidence that OneCoin may not have been the brainchild of a single Eastern European woman. Instead, there are strong indications that regional organized crime was involved, with Ruja Ignatova acting as the public face of something much darker.

Could the same be true of Satish Khumbani and BitConnect? Did Khumbani, Divyesh Darji, and even Craig Grant evade U.S. and Indian justice on their own? Or did some of them get help from powerful allies who don’t want them talking to authorities?

Remember that Nalin Kotadiya, a former BJP elected official, allegedly got his hands dirty by looping police officers into an extortion and kidnapping scheme. And that the BJP is headed by Nehrendra Modi, India’s current prime minister.

It was Modi who pursued a program of so-called “demonetization,” an attempt to flush out illicit cash earned from bribes, crime, or tax evasion. Indian police have alleged that Satish Kumbhani and BitConnect solicited investment from holders of this “Black Money.” In fact, it may have been a key early driver of BitConnect’s growth.

Remember that Gujarat, the state where BitConnect was founded, was also the power base for Modi in the years before he became Prime Minister in 2014. And, according to former Indian news anchor and current CoinDesk staffer Amitoj Singh, the BJP had “carte blanche” in the region.

This is all circumstantial evidence, of course. It would be irresponsible, I can hear you objecting, to make the leap from these scant shreds of evidence into wild speculation. It would be irresponsible of us to even suggest that Indian and U.S. law enforcement still haven’t really gotten to the bottom of BitConnect. We could never make that claim, based only on a few general correlations rather than any specific connection.

Luckily, we don’t have to make that leap.

That’s the voice of Shaktisinh Gohil, a veteran member of Indian Parliament and spokesman for the Indian National Congress political party, which opposes the BJP. In July 2018, after BitConnect’s collapse, Gohil held a press conference to air suspicions that Nerendra Mohdi’s BJP was involved in the BitConnect fraud.

In fact, Gohil claimed that while he was on the run from law enforcement, former BJP politician Nilan Kotadiya said in a video that "if he is arrested, he will reveal damning evidences which will expose top BJP leaders in the state".

CoinDesk has been unable, so far, to independently confirm that threat from Kotadiya.

But based on Kotadiya’s threat, Gohil claimed the case was a complex fraud involving "illegal hawala transactions, kidnappings, [and] extortion of cryptocurrency using CBI, police, [and] government authorities at the behest of top BJP leaders in Gujarat,” according to English translations by NDTV.

Gohil further alleged that political pressure had been applied in the case, and suggested that some of the players were being protected at a high level.

Gohil said the Modi government had sent investigative agencies to “hound” opposition leaders in Gujarat in other cases, but "does not bother to investigate this scam in which an absconding mastermind BJP leader has made serious allegations of how top BJP leaders are linked with this entire saga of illicit money transactions".

It’s a staggering allegation that remains unresolved: What if the real top of the BitConnect pyramid scheme was, in effect, Indian Prime Minister Nehrendra Mohdi?

Part 3 - Do I Look Like a Sucker To You?

That particular disturbing thread still needs much more pulling. But we want to end with a few thoughts on a more immediately pressing question: How do you avoid getting scammed yourself, whether by a random self-styled crypto developer, or the prime minister of India?

First and foremost, be skeptical of big promises and easy profits. But just as important, be willing to change your mind, even when you’ve already got money tied up in what you thought was a good investment. Nearly everyone who works to expose scams discovers just how hard it is to convince victims that they’re getting ripped off, even in the face of very suspicious signs.

The pseudonymous investigator known as @bccponzi, who eventually helped bring down BitConnect, saw that kind of resistance again and again.

BCCPONZI:

“The response is almost always, nobody has ever lost anything with it, so it all went well, why should I lose money? And my reply usually is, it works, until it doesn’t work. And that’s usually the case with Ponzi schemes. Nobody loses anything until everybody loses everything.”

DAVID:

Unfamiliarity with finance and financial scams is just one part of the problem. We’ve already seen that many of the victims of financial fraud are facing intense hardship, which can blind them even to obvious red flags. Even without that hardship, many scam victims are vulnerable because of their lust for money.

BCCPONZI:

“It’s really greed that motivates them. It is too good to be true, but some people just want it to be too good to be true … Some people do get it and get out, but it’s certainly the small minority.”

DAVID:

One other point is also important: while they may be misled, the victims of scams like BitConnect are not just a bunch of simpleminded dupes. In fact, sometimes being smart actually helps victims trick themselves.

BCCPONZI:

“It’s hard to tell how they think, but they’re definitely not all very stupid or something. But when it comes to financial stuff, they probably don’t have the right background to understand how they’re being fooled …”

“They make up all sorts of things to validate it for themselves. You see the most weirdest calculations they come up with to validate it… you can tell them all the stuff and point them to all the red flags but they still say, it works, but this, but that.”

DAVID:

In short, if you think you’re too clever to get scammed, you may already be fooling yourself.

Scammers themselves often seem to fall into a similar trap: the idea that they’re too smart to get caught.

BitConnect may be ancient history by crypto standards - but as the saying goes, those who ignore history are doomed to repeat it. The fates of BitConnect’s creators and promoters highlight a timeless truth.

They’re on the run, lives ruined, loved ones dead or missing, permanently marked as high-profile con artists, with their victims’ immense suffering a permanent stain on their souls. And maybe, just maybe, they’re in the crosshairs of even more nefarious villains.

Quick and easy riches will always be a strong temptation for the shortsighted. But in the longer run, crime definitely doesn’t pay.

Not even … for crypto crooks.

We hope you’ve enjoyed our dive into BitConnect, and learned something from the story of its downfall. Next season, we will dive into a much more recent story: the tale of a man who thought he had invented a perpetual money machine. Satish Kumbhani conned naive individuals around the world, but one of his successors tricked some of the most sophisticated investors on the planet.

Lunacy: The Rise and Fall of Do Kwon.

Coming soon, on Crypto Crooks.