New Delhi: Marking the biggest seizure by any Indian investigating agency in terms of alleged proceeds of crime recovered in a single day, the Enforcement Directorate (ED) Thursday seized cryptocurrency worth Rs 1,646 crore as part of a probe into a multinational cryptocurrency fraud estimated at $2.4 billion (Rs 2,080 crore). The cryptocurrency was recovered from digital devices during searches at premises in Gujarat linked to accused Satish Kumbhani and transferred to the agency’s cryptocurrency wallet.
Kumbhani, who hails from Gujarat, is accused of committing fraud between 2016 and 2018 through his US-based firm BitConnect, through which he allegedly orchestrated a ponzi scheme by forming a nexus of agents and fictitious firms across the world and promised returns to the tune of 40 percent each month to crypto investors.
BitConnect, founded in 2016, created a digital token called BitConnect Coin that could be changed for bitcoin to participate in the exchange’s investment offerings.
Additionally, Kumbhani and his associates linked to the firm allegedly displayed false returns on the portals of BitConnect to the tune of 3,700 percent annually to keep investors hooked. They are said to have deployed a “volatility software trading bot” that automatically boosted returns on investment.
ED’s investigation under the Prevention of Money Laundering Act (PMLA) stems from two cases filed by the Surat branch of Gujarat’s criminal investigation department (CID). These were registered under Indian Penal Code sections 409 (criminal breach of trust by public servant or banker, merchant or agent), 406 (criminal breach of trust), 420 (cheating), 120B (criminal conspiracy) and 201 (destruction of evidence).
Also invoked were section 3 of Gujarat Protection of Interest of Depositors Act, sections 4, 5 and 6 of the Prize Chits and Money Circulation Schemes (Banning) Act and section 66(D) of the Information Technology Act.
Noting the quantum of proceeds of crime in the wake of the latest seizures, sources in the ED said Kumbhani may well be taken into custody to unearth the conspiracy and to assess the entire volume of fraud committed through his now-defunct crypto investment platform.
“It was found that a large number of transactions were carried out through the dark web in an effort to make the transactions untraceable. However, tracking numerous web wallets, IP addresses, IP detail records and gathering on-ground intelligence, the ED was able to zero in on the wallets and the premises where the digital devices containing the said crypto were available,” an official told ThePrint on condition of anonymity.
Adding, “Thereafter, by conducting searches, digital devices were recovered and cryptocurrency worth Rs 1,646 crore was seized and transferred to department’s wallet.”
The ED so far has attached other assets worth Rs 535 crore as part of the probe into alleged wrongdoings committed by the BitConnect founder and promoters.
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‘Largest cryptocurrency fraud ever’
The case first involving BitConnect came to light in India when an investor named Ashwin Limbasiya approached the Gujarat Police alleging that he had been defrauded of Rs 1.14 crore. On his complaint, the Gujarat CID booked Kumbhani and his associates Divyesh Darji, Suresh Gorasiya and Dhaval Mavani in July 2018.
While Darji was arrested by the CID the same year, Kumbhani was arrested in June 2019.
While in judicial custody, Kumbhani was also questioned by the US Federal Bureau of Investigation (FBI) in connection with chargest that his company allegedly defrauded investors from at least 10 countries, including the US.
Kumbhani was later released on bail by the Gujarat High Court in 2020.
In September 2021, a US-based director of BitConnect, Glenn Arcaro, pleaded guilty in federal court for his participation in what the US Department of Justice declared was the “largest cryptocurrency fraud ever charged”. Arcaro admitted to being involved in a conspiracy to mislead investors about BitConnect’s technology and earning around $24 million from the plot. A federal judge in January 2023 ordered Arcaro to pay up more than $17 million to nearly 800 victims of the fraud from over 40 countries.
Meanwhile, Kumbhani was indicted by a US federal grand jury in 2022 for running a ponzi scheme in the garb of a proprietary technology, the “BitConnect Trading Bot” and “Volatility Software”, that could potentially generate exponential profits for investors.
The US Department of Justice stated that Kumbhani pooled in approximately $2.4 billion from investors as part of the ponzi scheme for a year before abruptly shutting down the scheme. Charged with conspiracy to commit wire fraud, commodity price manipulation and international money laundering, and for operating an unlicensed money transmitting business, Kumbhani faces a maximum of 70 years in prison in the US.
The Australian promoter of BitConnect, John Bigatton, was also convicted last year by Sydney District Court for providing unlicenced financial advice as he promoted BitConnect in Australia in seminars and on social media between August 2017 and January 2018.
ED probe so far
The ED investigation has identified the roles played by Kumbhani’s associates in the global cryptocurrency fraud.
The probe so far has established that Darji was the all-India promoter of BitConnect Coin and had in March 2017 incorporated Bitconnect Training Institute (India) Private Limited to provide information on cryptocurrency and lure investors from India. To achieve the purpose of reaching out and bringing more investors onboard, Darji organised seminars in India, Thailand and Vietnam, according to sources in the ED.
“He collected huge investments from investors/public by showing different investment plans with promise of giving good referral commission, and also promised interest at the rate of 0.5 to 2 percent on the investments,” a second ED official told ThePrint.
On the role of Dhaval Mavani, the ED has so far found that he was the developer of BitConnect Coin and its website, and also assisted Kumbhani in using the proceeds of crime to acquire immovable properties in the name of his relatives, the sources said.
The ED had in August last year also arrested one Shailesh Babulal Bhatt, who had invested a huge sum in BitConnect plans and was later accused of abducting two of Kumbhani’s aides to allegedly extort 2,091 bitcoins, 11,000 LiteCoins, besides Rs 14.50 crore in cash.
(Edited by Nida Fatima Siddiqui)
It’s shameful indeed!
Pretty much every single financial crime in India, which runs into thousands of crores, has some kind of Gujarat connection. More often than not, Gujarat is at the centre of the crime.
Combined with the fact that the biggest drug seizures in Indian history, worth thousands of crores, have been made at various Gujarat ports – paints a very bleak picture.
Seems as if the “Gujarat model” is no more what it was touted to be for so long.