Securities and Exchange Commission v. BitConnect

Background

The Securities and Exchange Commission brought this civil enforcement action against BitConnect, Satish Kumbhani, Glenn Arcaro, and Future Money Ltd. The opinion text concerns the judgment against Glenn Arcaro only. Arcaro entered a general appearance, accepted the court’s jurisdiction, consented to the judgment, waived findings of fact and legal conclusions, and waived any right to appeal.

The consent states that Arcaro pleaded guilty on September 1, 2021, in a separate criminal case to violations of 18 U.S.C. § 1349 involving conduct related to matters alleged in the Commission’s complaint. The consent resolves only the Commission’s civil claims against Arcaro and does not address any criminal liability beyond the statements contained in the consent.

Judgment

The court permanently restrained and enjoined Arcaro from violating Section 5 of the Securities Act of 1933 by offering, selling, or transporting securities without an effective registration statement when no exemption applies. The judgment also permanently bars him from violating Section 17(a) of that Act by using fraud, material misstatements or omissions, or fraudulent practices in offering or selling securities.

The court further permanently restrained and enjoined Arcaro from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 by using fraud, material misstatements or omissions, or deceptive practices in connection with securities transactions. It also bars him from violating Section 15(a) of the Exchange Act by effecting or inducing securities transactions without the required registration or association with a registered broker-dealer.

The judgment separately prohibits Arcaro from offering, operating, or participating in a marketing or sales program in which compensation is based primarily on inducing others to join the program or on further inducements by those participants. It also permanently bars him from directly or indirectly participating in an offering of digital-asset securities, while allowing purchases and sales for his own personal account.

Potential monetary remedies and other terms

The judgment does not set a dollar amount for monetary relief. Instead, it provides that, upon the Commission’s motion, the court will determine whether disgorgement of ill-gotten gains, prejudgment interest, and a civil penalty are appropriate and, if so, their amounts. If disgorgement is ordered, interest will be calculated from January 16, 2018, using the Internal Revenue Service underpayment rate identified in the judgment.

For purposes of deciding that later motion, Arcaro is barred from arguing that he did not violate the federal securities laws alleged in the complaint or challenging the consent or judgment. The complaint’s allegations will be accepted as true for that motion. The judgment permits the parties to take discovery, including discovery from appropriate non-parties, and permits the court to rely on specified documentary and sworn evidence without applying the summary-judgment standards in Federal Rule of Civil Procedure 56(c).

The consent also states that the complaint’s allegations are true for purposes of the Bankruptcy Code’s exception for certain debts arising from federal securities-law violations. The court retained jurisdiction to enforce the judgment, and the judgment binds certain people who receive actual notice and act in concert with Arcaro or his covered representatives.