"Crypto Crooks" is sponsored by Chainalysis.
BitConnect investors were on top of the world. Their investments were going up, up and up. The BitConnect token was making inroads around the world. It was almost too good to be true.
Or rather, it was too good to be true.
In this first episode of “Crypto Crooks,” we go back to the beginning with Amitoj Singh, a CoinDesk regulatory reporter based in India, to look at the rise of BitConnect. We also tackle some of the crimes surrounding the company, including a vicious kidnapping, and the suspicions regulators quickly brought to BitConnect’s door. It was a glorious beginning … already ripe for a tragic end.
Chainalysis is the blockchain data platform. We provide data, software, services, and research to government agencies, Web3 companies, financial institutions, and insurance and cybersecurity companies. Our data powers investigation, compliance, and business intelligence software that has been used to solve some of the world’s most high-profile criminal cases. For more information, visit www.chainalysis.com.
“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:
In February of 2018, a man came to the home minister’s office in Gandhinagar, the capital of the Indian state of Gujarat, with a nightmarish tale. He had been kidnapped, he claimed, and extorted for an immense ransom – not by thugs or criminals, but by the police.
That man was Shailesh Bhatt, a successful property developer in Gujarat. Bhatt claimed that officers of a local police force from Amreli, a district of Gujarat, had captured Bhatt and demanded that he pay them 200 Bitcoin, then worth around $1.8 million dollars. Bhatt further claimed that the cops from Amreli had acted under orders from a shadowy mastermind connected to the most powerful political party in the state.
The kidnappers probably never expected Bhatt to go to the authorities. Because they knew that Bhatt himself was a kidnapper and extortionist.
The roots of this sordid little affair lead back to BitConnect, a cryptocurrency investment firm that had been launched from Gujarat in 2016. In just two years, by combining multi-level marketing tactics pioneered by Americans and the soaring rhetoric of newfangled blockchain technology, BitConnect spread around the world, raking in a staggering $2.4 billion dollars in investments. About $293,000 of that reportedly came from Shailesh Bhatt.
The problem, of course, was that BitConnect was a fraud.
In January of 2018, just weeks before Bhatt showed up to beg for help against corrupt police, financial authorities around the world had begun issuing cease-and-desist orders against the purported investment firm, claiming that it had filed false documents and hid its real structure and operations. The orders sent BitConnect into a rapid collapse, wiping out effectively all of investors’ funds. The fallout included not just Bhatt’s convoluted kidnapping, but also an suspicious “suicide” in Australia, a wave of indictments in the United States, and untold suffering among tens of thousands of victims globally.
Shailesh Bhatt, by breaking the code of silence among those near the center of the scam, became a loose thread that helped unravel BitConnect’s veil of secrecy.
Hello and welcome to Crypto Crooks, a new podcast from CoinDesk. I’m David Z. Morris, CoinDesk’s Chief Insights Columnist. I’ve been reporting on cryptocurrency since 2013 for news organizations including Fortune, Bitcoin Magazine, Slate, The Atlantic and Breaker Magazine. I’ve followed crypto so closely because I believe it will profoundly transform how we live.
But I’ve also watched as the real promise of crypto has been repeatedly threatened by the constant stream of con-men and hucksters who prey on the uninformed, the naïve, and the desperate. It remains a lightly-regulated and poorly-understood sector, which makes it a perfect hunting ground for scammers. A big part of my job here at CoinDesk is calling out sketchy projects and outright frauds, and I’ve seen enough of them over the years to know what they look like.
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, the fraudsters using it to rope in victims use techniques as old as the financial industry – in some cases, as old as money itself.
We’re kicking things off with perhaps the most notorious crypto scam of all time. You already know the name.
Welcome to Crypto Crooks Season 1: BitConnect.
Part 1: Black Money
It all started in Gujarat.
Located on India’s western edge, Gujarat is one of the country’s most heavily industrialized states, and well-known for its financial creativity. Shailesh Bhatt’s police kidnappers were based in Amreli, a town in central Gujarat. BitConnect was allegedly created by a man named Satish Kumbhani, from the small Gujarati village of Hemal. Gujarat was also an early seat of power for Nerendra Modi, who was chief minister of Gujarat before being elected prime minister of India in 2014. Modi still holds India’s top job today.
Ironically, Gujarati state police would later claim that Modi’s first big anti-corruption initiative helped the BitConnect scam grow. In November of 2016, the newly-elected Modi ordered the so-called demonetization of 500 and 1000 rupee notes – then worth about seven dollars and fourteen dollars, respectively. The notes would no longer be considered legal tender, and holders who didn’t want to lose them were forced to deposit the cash in banks and exchange them for new notes.
The goal was to identify and eliminate the proceeds of corruption – so-called “black money.”
It … didn’t go well.
“He literally said, we’re taking away those bank notes to cut black money, to end corruption, and … the country just spiraled into chaos immediately.”
DAVID Z. MORRIS:
That’s Amitoj Singh, a CoinDesk regulatory reporter based in India. On the day demonetization suddenly arrived, he was an anchor for NDTV, one of India’s most respected news outlets.
“There were stories of three day lines, three day queues … the banking system was just not prepared for it. Now one of the things that you have to remember is this was a very secret decision, the prime minister had only told a few people … so when this happened, they had to quickly deliver the new notes that would exchange the old notes, and give them to the public. But that delivery system took a while, and so there was panic.”
DAVID Z. MORRIS:
For Indian capitalists of a certain stripe, the order caused a more personal sort of heartburn. Modi’s goal in ordering demonetization was to remove so-called “black money” - money that had been concealed from the authorities to evade taxes, or that was the proceeds of crime - from the economy. Criminals and tax evaders, Modi reckoned, wouldn’t dare exchange their stacks of illicit cash for the new notes, because they’d have to reveal where they’d gotten it.
“So The people that were believed to have hoarded black money and not paid taxes were … well, it’s coming from every spectrum. You’re talking about politicians, you’re talking about businessmen, you’re talking about civil servants who have taken money in bribes. You’re talking about anyone and everyone, really.”
DAVID Z. MORRIS:
Some holders of black money seem to have simply panicked, literally throwing their fortunes to the wind.
AMITOJ SINGH: “I remember the next day or the day after just driving past a bridge in New Delhi, and a lot of people were just looking down the bridge. And I stopped to asked what happened, and Somebody said look, and I went there, and I could see notes being thrown away there. So basically someone had a lot of money, had hoarded a lot of black money, and had thrown it.”
DAVID Z. MORRIS:
But according to the Gujarati state police investigators who followed up on Shailesh Bhatt’s case, Satish Kumbhani reached out to some of those unfortunate souls to offer another option for protecting their black money: putting it in cryptocurrency. And more than just protecting their wealth by putting it in Bitcoin, Kumbhani offered them the chance to make it grow – ridiculously fast.
Shailesh Bhatt was never charged with trying to evade capital controls or launder money, but it’s not much of a stretch to imagine a property developer had some off-the-books revenue that he’d want to hide from the taxman. (One small note: As if this wasn’t already confusing, a different Shailesh Bhatt, also from Gujarat, has been in the headlines recently after his release from prison after serving 15 years of a controversial sentence. This is a different person.)
“There’s something known in India that one has to understand. It’s called is Jugard .. it’s a word, which basically says, we find a way to get what we want … One has to think about, okay, something as catastrophic as demonetization has just happened. What do we do with the money that we have? We have to get it back into the mainstream. Cryptocurrency is a route. It’s not out of the realm of possibility, in fact it’s in the realm of probability, that they would have done that. And, if you tell anyone in India, they’ll totally believe it. Because anything is possible, that’s the whole meaning of Jugard: ‘Find a damn way.’”
DAVID Z. MORRIS:
There has been little investigation of the use of cryptocurrency to hide funds after demonetization - and we now know that, because of its traceability, Bitcoin isn’t ideal for that task. But the Gujarat CID were not the only officials to make the claim.
An unnamed senior Gujarati official told The Hindu in 2018 that “It’s an open secret that people having a high volume of cash at the time of demonetisation converted their black money into crypto currencies with the help of havala operators.” Havala is an informal money transmission system widespread in the Middle East and South Asia - and it’s much harder to trace than Bitcoin.
Officials also estimated to The Hindu that approximately 50 billion rupees, then worth about $725 million U.S. dollars, were converted to cryptocurrencies in Gujarat alone. Shaktisinh Gohil of the opposition All India Congress Committee alleged that the BJP was complicit, pointing to huge cash inflows to banks linked to BJP leaders. This would mean Prime Minister Modi’s own party was undermining his signature anti-corruption policy.
There is other evidence for the role of Bitcoin in circumventing Modi’s demonetization policy. Within just a few weeks of the demonetization order, Bitcoin on Indian exchanges like Zebpay and Coinsecure was trading at as much as a 25% premium compared to prices around the world, at a time when many crypto exchanges didn’t care much about users’ real identities.
This had its own impacts: Global bitcoin trading volumes surged, and between November 2016 and January 2017, the price of Bitcoin shot from around $730 in U.S. dollars to $1130.
That jump of more than 50% arguably primed the pump for a crypto bull market that accelerated throughout 2017 and saw Bitcoin peaking at nearly $20,000 per token.
But the surging supply of Bitcoin in India seems to have benefitted Satish Kumbhani most of all.
Like Shailesh Bhatt, Kumbhani was based in Gujarat. He was also, in a sense, a builder. But if Shailesh Bhatt was focused on office parks and warehouses, Satish Kumbhani claimed to have built something far more exciting: an automated trading algorithm that could make money from the volatility in Bitcoin. Kumbhani certainly looks the part of a nerdy blockchain developer: In one of a handful of interviews Kumbhani ever gave about BitConnect, he seems physically slight and awkward, wearing an ill-fitting suit jacket over a large Nike t-shirt, and a huge watch that could be worth ten bucks as easily as ten thousand.
“The center of this Ponzi scheme was Gujarat, the Indian state most well known for people and a culture of saving money, of being damn good with their money … They are the state from where Prime Minister Modi himself emerged, it’s a state that truly thinks about money, perhaps more than anything else.”
DAVID Z. MORRIS:
Kumbhani began offering access to his “trading bot” to outside investors in February of 2016, almost a year before demonetization began. Just loan him some Bitcoin, and he’d deliver incredible results – steady, safe investment returns as high as 40% per month. Of course, this was such an innovation that the trading bot could never be shown to anyone – including investors.
Kumbhani’s answer is hard to hear, but here’s what he says, incomplete sentences and all: “Everybody is waiting to see the trading bot and how it is in action. How we are making the profit from the system. So actually, if the system has some privacy, not to show how the bot is working. Last night, we had the meeting with the top promoters around the world and we have shown the promoters there are some logics working behind the trading bot. But for privacy reasons, we are not revealing everything about our meeting last evening.”In other words, if you want to see the trading bot, and you’re not part of our inner circle, you’re out of luck. You just have to trust us.
Consistent, safe returns that high are completely unheard of in finance, especially in products available to retail depositors. But when demonetization pushed many Indians to buy Bitcoin, some seem to have decided lending their new digital assets to Kumbhani’s investment program was a great idea. That included our kidnapping victim Shailesh Bhatt, who investigators say deposited funds equivalent to $293,000 into BitConnect over the course of 2016 and 2017.
For a while, things seemed to be going extremely well for BitConnect and investors like Bhatt. Not only were investors being shown huge returns from their Bitcoin loans to the BitConnect trading bot, the price of BitConnect’s own token, BCC, was surging. By October of 2017, thanks to its use of pyramid scheme marketing tactics, BitConnect had reached nearly every corner of the world. Two thousand ecstatic investors flocked to the first BitConnect Annual Ceremony at the lush and luxurious Royal Cliff Hotel in Pattaya, Thailand. Investors like Carlos Matos of Queens, New York.
But within just months, that kind of limitless enthusiasm would run headlong into a brick wall. Though skepticism of BitConnect had been widespread nearly from the beginning, the first truly deadly blow came in January of 2018, when the Texas Securities Commission issued an emergency cease and desist ordering BitConnect to cease marketing its investment plans in the U.S. state.
The Texas order alleged that BitConnect was offering an unlicensed security, and pointed out that the company “has disclosed virtually nothing about its principals, financial condition, or strategies for earning profits for investors … including the algorithms behind the Trading Bot.”
Of course, there was a very simple explanation for that lack of transparency: There was no trading bot.
Instead, BitConnect had simply been faking its investors’ supposed returns, which they could only view through BitConnect’s website.
When authorities finally caught on, BitConnect’s masterminds made the only logical decision: they ran away. On January 16th, BitConnect posted an update to its website that included the following message:
“This is to inform all community members that we are closing the BitConnect lending and exchange platform. We are closing the lending operation immediately with the release of all outstanding loans. With release of your entire active loan in the lending wallet we are transferring all your lending wallet balance to your BitConnect wallet … You are free to withdraw your BitConnect coin currently in … wallets that was used for staking as well. We are also closing BCC exchange platform in 5 days.”
The update went on to blame threats from regulators and bad press for the shutdown. It concluded with assurances that BitConnect would continue in some form, including through a future exchange platform that would eventually list BitConnect’s token, BCC.
“This is not the end of this community, but we are closing some of the services on the website platform and we will continue offering other cryptocurrency services in the future,” the note concluded.
Here BitConnect was playing the classics: the assurance of future revitalization is what 19th century American grifters referred to as “the blow-off”: a way to keep scam victims from complaining too loudly, such as by hinting they might still get their money back. It’ll seem familiar to those who have watched the aftermath of some more recent crypto blowups: Luna founder Do Kwon promised that Luna 2 would be much, much better than the version that melted down and took $40 billion with it in April of 2022.
BitConnect did do one thing that seems reasonable, even shockingly ethical at first glance: it promised to refund investors’ money. But that refund came with a big, huge asterisk: investors wouldn’t be getting back the Bitcoin they had initially lent to Satish Kumbhani and his imaginary trading bot. Instead, they’d get their money back in the form of BCC, or BitConnect’s native token.
Bitcoin was a then increasingly legitimate digital asset that would as much as triple in value within just three years. BCC, by contrast, had effectively zero utility after the BitConnect lending program closed.
The BCC token’s price had peaked at more than $450 just two weeks before the Texas order, in December of 2018. But the day after the order, the price of the token began to plummet. The day after BitConnect announced it was shuttering, the token lost 90% of its value. Today, the BitConnect token is worth zero dollars.
This confusing blur of assets led to another historic moment, a kind of bookend to Carlos Matos’ infectious optimism.
We’ll get to know that lovable screwup, Trevon James, in a future episode. And his stumbling rationalization actually is a decent enough description of what happened. Investors might have lost their good money – dollars, yen, or bitcoin – but they got to keep their BCC. The only problem was that BCC was next to worthless. And those promises of a future trading platform never came to fruition – as it happened, BitConnect’s founders were probably a little busy fleeing the authorities.
But this “exit scam,” a sort of con that happens with shocking regularity even now, was always in the cards. BitConnect was, among other things, a classic Ponzi scheme, mathematically doomed to end in catastrophe.
The numbers are staggering: In the final accounting, the U.S. Justice Department concluded that about $2.4 billion dollars’ worth of investors’ rupees, pesos, bitcoin and dollars had been sucked into the black hole of BitConnect. For some, the sting of collapse was much worse: at its peak, BitConnect’s token and the balances shown to ‘investors’ on the lending platform totaled close to $4 billion dollars.
That money was never real, but the victims sure thought it was. And as we’ll see, the consequences were very real indeed.
Part 2: No Honor Among Thieves
Among the people who kind of lost their money in Bitconnect’s January 2018 shutdown was our kidnapping victim, Shailesh Bhatt. Though in a recurring theme in the BitConnect saga, Bhatt was both a victim and a perpetrator.
Bhatt responded to BitConnect’s January 2018 collapse in a perfectly reasonable manner. He gathered nine fellow victims, including one Kirit Paladiya, and planned the kidnapping of two BitConnect workers. First, men working for Bhatt posed as tax officials and kidnapped Piyush Savalia, described by the Times of India as an “office boy” at BitConnect. Savalia in turn led Bhatt’s heavies to Dhaval Mavani who was later revealed to be one of Satish Kumbhani’s main co-conspirators. They kidnapped him, too.
According to charges filed later, Bhatt’s men held Mavani at gunpoint and forced him to transfer 2,256 Bitcoin, and 11,000 litecoin, for a total ransom of more than $19 million dollars, to Shailesh Bhatt. Not a bad return on Bhatt’s initial $293,000 investment.
Unfortunately, Bhatt’s accomplices decided they wanted a bigger cut. According to lead CID investigator Ashish Bhatia, Bhatt’s accomplice Kirit Paladiya sought help from his uncle, a former BJP legislator named Nalin Kotadiya.
It was allegedly through Kotadiya’s influence that police officers were recruited to kidnap the kidnapper, illegally detaining Shailesh Bhatt and demanding 200 bitcoin in turn. When the charges against him became public, police said Kotadiya absconded rather than face them.
Part 3: A pyramid-shaped structure
A little over a month later, the fallout from BitConnect continued. In Sydney, Australia, separated from Gujarat by an ocean and most of a continent, John Biggaton couldn’t find his wife.
Madeline was spotted leaving their sprawling home that morning, and had texted John a banal reminder to feed the dog. But by the evening of March 25, 2018, she still hadn’t come home.
Her disappearance didn’t come entirely out of the blue. John and Madeline Biggaton had been married for nearly 20 years and had two children. Those who knew them described the family as loving.
But BitConnect’s collapse had made things very difficult in the Biggaton household. John hadn’t been foolish enough to buy into the investment scheme – he was in the business of selling, not buying. Biggaton was one of BitConnect’s biggest promoters, overseeing the entire Australian arm of the operation. He was even featured onstage at BitConnect’s big event in Pattaya, Thailand, as part of the program’s inner circle.
Biggaton had spent his entire career, not in cryptocurrency, but in sales – and that’s how BitConnect grew so big, so fast. BitConnect took a page from Amway, Herbalife, and other so-called “Multi-level marketing” companies to incentivize a growing network of professional salespeople, as well as a new generation of online promoters. Those online promoters would encourage new BitConnect buyers to use their referral code. They’d get a percentage of sales, they’d also get a percentage of any sales made by other promoters they recruited.
Multi-level marketing was pioneered in large part by Amway cofounder Richard M. DeVos, who tapped into mid century American housewives’ isolation and marginalization. Amway, for most participants, was less a serious business than a way for them to feel empowered and active. That social element, complete with endless prizes and other positive reinforcement, made participants much less likely to complain when promises of big bucks never quite materialized.
This insight helped Amway become a huge business, making the DeVos family extremely wealthy and influential – Richard DeVos’ daughter in law, Betsy DeVos, would go on to become Education Secretary in the Trump administration.
When MLMs have a real product, like Amway and Herbalife, they’re legal in the United States – though studies have shown that the vast majority of MLM participants lose money. But when they don’t have a product, or when their product is fraudulent, they’re called something else: pyramid schemes.
BitConnect leveraged some of the biggest trends of the emerging cryptosphere to drive its pyramid-shaped growth plan. YouTube had already become the home of a growing number of crypto commentators and influencers, and many of them uncritically hailed BitConnect’s huge promised returns – then directed followers to use their “affiliate link” to join the fun. Those affiliate connections would then funnel money back to the influencers if their followers invested.
It seems plausible that many of these online influencers didn’t entirely grasp that they were promoting a scam. The FBI, SEC, and other financial authorities questioned or indicted many influencers, including American promoters Trevon James, Craig Grant, and Glen Arcaro. But they never went after Carlos Matos, who by all accounts appears to have been just another deceived victim.
Matos standing on the same stage as the people who scammed him, and recording Bitconnect’s most effective, infectious endorsement, is exactly how pyramid schemes are supposed to work: an endless chain of victims, ripping each other off, and handing the proceeds to the masterminds on top.
John Biggaton was one of those masterminds, in charge of all promotion of BitConnect in Australia, with lower-tier promoters taking marching orders from him.
Biggaton may have been a big wheel, but like any good pyramid schemer, he still had time for the personal touch – recruiting close friends into BitConnect. That included Steve and Dani Bow, who handed over $130,000 AUD. After BitConnect imploded, all that was gone. But another friend who had joined in lost much more.
Steve and Dani say Biggaton never apologized to them for losing their money. In fact, they say he hasn’t spoken to them since.
In 2020, Biggaton would be indicted by Australian financial authorities, who alleged he had operated as an unregistered investment manager and made false and misleading statements when he pitched BitConnect at seminars around the country, as well as in online videos.
But well before all that, at around 11:30 on that March 2018 morning, Madeline left the opulent home she shared with John near Sydney. According to Australia’s 7News, she dropped her youngest daughter off at a friend’s home, then texted her husband a banal reminder to feed the dog.
What happened next is still a mystery. Her car was found in the parking lot at an ocean overlook called Kurnell. Her wedding ring had been placed carefully in the car. The keys had been discarded near a stony cliff that dropped into crashing, rocky surf.
She hasn’t been seen since.