Greater opportunity for fraud

Alleged victims describe BitConnect as multi-level, or pyramid, marketing, with participants earning commissions for recruiting others. Attempts to contact the company for comment were unsuccessful.

The frustration isn’t limited to BitConnect. In Crypto World, which suffers from a pandemic of scams, it’s not difficult to get suckered. Many crypto investment sites don’t supply contact information, and many owners are based outside the U.S.

There’s also the issue of oversight. Crypto World has very little, a fact that concerns Jay Clayton, chairman of the U.S. Securities and Exchange Commission.

“There is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation,” Clayton said in a Feb. 6 hearing of the Senate Banking Committee.

At the same time, Crypto Watchdogs’ call for crowdsourced justice can backfire, with innocent people getting hurt. And the retribution may not fit the transgression. It’s entirely possible that BitConnect’s alleged wrongdoing doesn’t rise to the level of crime.

With BitConnect, new users would deposit bitcoin and receive BitConnect coins they could lend at interest of more than 40 per cent a month. The interest they earned would be higher if they recruited others to invest their bitcoins in BitConnect.

“Multi-level marketing is not illegal,” said Peter Henning, a former SEC and Justice lawyer who is now a professor at Wayne State University Law School in Detroit. “My guess is the top people are far beyond American jurisdiction.”

BitConnect’s top people have so far eluded unmasking. The company is registered in the U.K. and lists names of directors, but U.K. rules don’t require directors of registered companies to provide identification.

Documents show four different firms registered with the name. The named founder of Bitconnect Ltd., Ken Fitzsimmons, registered an address in Ashford, outside of London. But neither the building’s receptionist nor another business owner there had ever heard of a Ken Fitzsimmons or the company.

Bitconnect International was established by Le Thi Thannh Huy, who listed two different addresses on the same street in East London. Neighbours said they’d never heard of a Le Thi Thannh Huy. One of the houses appeared to be uninhabited.