Glenn Arcaro has moved to dismiss a class-action lawsuit filed by BitConnect victims.

Arcaro, who went into hiding just before BitConnect collapsed earlier this year, dismisses victims of the multi-billion dollar Ponzi scheme as “disappointed gamblers”.

In a Motion to Dismiss filed on August 17th, Arcaro challenges allegations that BitConnect was a “scheme to defraud cryptocurrency speculators”.

Bearing in mind he’s BitConnect’s top US net-winner, Arcaro argues that laws cited in the class-action “do not apply to him” and that he has “no colorable legal responsibility” for his conduct.

Through promotion of BitConnect, Arcaro is believed to have made off with millions upon millions of dollars of fraudulently obtained investor funds.

Not surprisingly, arguments raised by Arcaro hold little legal weight. In fact his motion to dismiss is probably one of the most legally ignorant filings I’ve seen from a scammer’s attorney yet.

Defenses raised by Arcaro include

  • lack of personal jurisdiction
  • BitConnect’s BCC altcoin not being a security
  • Arcaro didn’t personally sell BitConnect
  • failure to establish ‘the “who, what, where, when, and how” of‘ BitConnect
  • no specific reliance on statements made by Arcaro
  • any efforts to promote BitConnect on YouTube by Arcaro are cancelled out because ‘BitConnect was being widely and loudly denounced as a fraud on the very same platform
  • fatal defects in several claims

BitConnect followed the typical “set up a shell company in the UK” Ponzi route.

Why scammers flock to register bogus companies through the essentially unregulated UK Companies House is evidenced in Arcaro’s motion.

All of the BitConnect entities are registered in the United Kingdom.

Arcaro argues he is being unfairly targeted because

there is no evidence that Plaintiffs’ counsel ever attempted service on any BitConnect entity, despite knowing where they are and presumably knowing about the well-recognized and widely used tools for serving process in the United Kingdom.

What Arcaro fails to address is that any address created for BitConnect related shell companies in the UK are as bogus as the incorporations themselves.

You can’t serve a non-existent address (to clarify, any address provided on BitConnect’s UK entities might exist but have nothing to do with the company).

Not withstanding BitConnect doesn’t even exist anymore outside of an abandoned website that will probably go offline once the current hosting expires.

Arcaro himself is in hiding and is believed to be avoiding US authorities.

Thus if victims of BitConnect want to sue top promoters who lead them down the garden path, they have no choice but to sue them.

What jurisdiction they choose shouldn’t matter, because BitConnect itself was set up on a corporate level to make it difficult to execute service.

Again, not withstanding Arcaro’s personal efforts to avoid litigation by going on the run just before BitConnect collapsed.

Which makes arguments like this entirely disingenuous;

Even if this Court were to find that Florida’s long-arm statute conferred jurisdiction over Mr. Arcaro —which Mr. Arcaro does not concede—the limits of the U.S. Constitution prohibit haling him into court in this District.

“The Due Process Clause of the Fourteenth Amendment operates to limit the power of a State to assert in personal jurisdiction over a nonresident defendant.”

Like BitConnect itself, Arcaro orchestrated an exit-strategy designed to make litigation and any investigation by authorities difficult.

That shouldn’t impede victims from suing BitConnect’s top US promoter if they file a lawsuit with valid claims and manage to execute service.

Next we’ll address Arcaro’s “BitConnect’s BCC is not a securities” argument.

BCC is only a security if it meets the definition of an “investment contract” under the Supreme Court’s test set forth in SEC v. W.J. Howey Co., which requires (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profits to be derived solely from the efforts of others.

Here’s how Arcaro challenges each of those prongs, and why he’s completely and utterly wrong on all three counts.

The first element of the Howey test cannot be met because BCC simply is not an investment of money.

BCC is an unregulated, decentralized cryptocurrency.

It can only be purchased with Bitcoin (“BTC”), another unregulated, decentralized cryptocurrency.

This is a strawman argument. BitConnect’s investment scheme was a security, through which affiliates invested on the promise of advertised returns.

The vehicle securities fraud is conducted through has never mattered. You can use fiat, cryptocurrency, toenail clippings, whatever you want.

Two of the biggest MLM Ponzi schemes to date, Zeek Rewards and TelexFree, used VIP points and VOIP packages respectively. And yes, promoters of both schemes incorrectly argued that neither VIP points or VOIP packages were securities.

If you’re offering a passive ROI opportunity (explicitly or implied), which BitConnect very much did, you’re offering a security.

The second element, the existence of a “common enterprise,” is satisfied where the “fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking investment of third parties.”

Here, the fortunes of BCC purchaser are not interwoven with the
fortunes of BitConnect or Mr. Arcaro, and the facts of this case are distinguishable from those relating to a recent action in which the SEC contended that a token offering met the definition of an investment contract.

To be clear, BitConnect investors invested on representations by BitConnect and Arcaro of returns.

Those returns were only payable if new investment continued to roll in.

Whatever money BitConnect and Arcaro personally made, was also 100% sourced from newly invested funds.

It is thus abundantly clear that “the fortunes” of BitConnect investors were “interwoven and dependent upon the efforts and success of those seeking investment of third parties”.

Once new investment ran out BitConnect collapsed. At that point BitConnect, Glenn Arcaro and every BitConnect investor ceased making money, which the majority of investors didn’t, through a common enterprise.

In order to satisfy this final prong of the Howey test, the Eleventh Circuit has articulated that investors must expect their profits to come from the “entrepreneurial or managerial efforts of others.”

The Complaint alleges no facts that would establish that BCC
satisfies the final element of the Howey test because BCC holders (and the Plaintiffs here) maintained control over the BCC they purchased from BitConnect.

This is much like the previous prong. Once BitConnect’s owners and promoters failed to solicit enough new investment to cover ROI payouts, the scheme collapsed.

Thus returns paid to investors were entirely derived “from the “entrepreneurial or managerial efforts of others”.

With respect to control, BCC points had to be parked with BitConnect in order to qualify for a ROI.

And so Glenn Arcaro’s weak attempt at arguing BitConnect doesn’t satisfy the Howey Test flops.

Next up Arcaro’s claim he didn’t personally sell BCC to any of the class plaintiffs.

Plaintiffs also fail to allege that Mr. Arcaro either sold BCC, or successfully solicited the sale of BCC, to either Plaintiffs or any other member of the putative class.

Section 12 limits liability to only those persons who “offer[] or sell[] a security” and limits relief to only those persons “purchasing such security from him.”

Glenn Arcaro is a named Director of BitConnect and by all accounts (as revealed by fellow top US investor Craig Grant in since-deleted YouTube videos), entirely in charge of BitConnect’s US operations.

Glenn Arcaro was BitConnect as far as the US went, so how is he arguing he didn’t sell anyone BCC with a straight face?

Bearing in mind BitConnect was a scam set up to avoid regulation and investigation, the rest of Arcaro’s arguments fall flat.

Plaintiffs must plead facts with particularity establishing (1) the precise misrepresentations for each defendant,

(2) the time, place, and person responsible for those purported misrepresentations,

(3) the content and manner in which those statements were misleading, and

(4) what each defendant supposedly gained thereby.

This is the “who, what, where, when, how” of their claims and if they can’t plead facts with particularity establishing these elements, their claims should be dismissed.

And how do you prove that when Arcaro and BitConnect began deleting evidence right before BitConnect collapsed.

Based on what the scammers weren’t able to delete, there is no question of doubt as to Arcaro’s position within the BitConnect hierarchy.

Craig Grant has publicly stated he was paid by Arcaro personally to promote BitConnect, with money Arcaro received through direct communication with those higher up than him outside of the US.

And that’s on top of the undisclosed amount of money Arcaro stole from investors through referral commissions, and whatever else he received in personal kickbacks.

Pending survival of Arcaro’s motion to dismiss, the specific amount he stole from BitConnect investors can be obtained through discovery.

No doubt having that on the public record, with active FBI and SEC regulatory investigations underway, is a terrifying prospect for Arcaro.

Glenn Arcaro’s motion to dismiss was filed on August 17th. A decision on the motion is pending.