U.S. to Sell $56 Million in Cryptocurrency Seized in BitConnect Fraud Scheme

U.S. District Judge Todd W. Robinson agreed to the request from the U.S. Justice Department and U.S. Attorney’s Office for the Southern District of California last week to seize the proceeds from Glenn Arcaro, a U.S. promoter for BitConnect’s cryptocurrency scheme. Mr. Arcaro consented to the seizure.

A lawyer for Mr. Arcaro declined to comment.

The Securities and Exchange Commission in September sued BitConnect, accusing it and its founder, Satish Kumbhani, of a $2 billion fraud that misused bitcoin raised from investors world-wide. That same month, Mr. Arcaro pleaded guilty in federal criminal court over his role in fleecing U.S. investors.

BitConnect sold its own digital asset in 2016 in exchange for bitcoin. The company told investors it had an automated program that would make money by trading the contributed bitcoin. Profits would be shared with investors through interest payments.

But BitConnect didn’t use a program to trade bitcoin, according to the SEC. Instead, the regulator said, Mr. Kumbhani siphoned off some for himself and shared other amounts with promoters who helped him raise the money.

The government said it would start the process of restitution for those who fell victim to the BitConnect scheme by selling the cryptocurrency and holding the proceeds in U.S. dollars.

Mr. Arcaro, who is scheduled to be sentenced on Jan. 7, 2022, faces up to 20 years in prison, according to the Justice Department.

—Dave Michaels contributed to this article.

Write to David Smagalla at [email protected]