Two Startup Founders Arrested In Connection With Amit Bhardwaj’s $300 Mn Cryptocurrency Ponzi Scheme

Following the arrest of the mastermind behind the $300 Mn cryptocurrency scam, Amit Bhardwaj, the police has now made two more arrests. According to reports, Darwin Labs founders Sahil Baghla (former Bluegape founder) and Nikunj Jain (former Frankly.me founder and an angel investor) have been arrested in connection with Amit Bhardwaj in the $300 Mn cryptocurrency ponzi scheme.

The duo had reportedly worked with Bhardwaj and received a 20% cut from him from their partnership.

Deputy commissioner of police (cyber & economics) Sudhir Hiremath told ToI, “The suspects are experts in making online payment gateways. They prepared gateways for the Gain Bitcoin Company owned by Amit Bhardwaj, the prime suspect in the case.” He further said, “The suspects stopped their operations after the case was registered against Bhardwaj at the Dattawadi police station. We are searching for the third director”.

After the arrest, the police also seized 43.225 Bitcoins ($384,269.60), 79.949 Ethereum ($50,403.04), cash worth $49,831 (INR 33 Lakh), a laptop and some mobile phones, among other things.

The police nabbed the accused after Bhardwaj revealed that founders of the Gurugram-based startup, Darwin Labs – Ayush Varshney, Nikunj Jain and Sahil Baghla – were his partners in the ventures of Bitcoin: Emcab and CoinBank. This led the police to access email conversations between the above-mentioned parties.

According to the email threads, the trio i.e. Jain, Baghla and Varshney had even decided to appoint a lawyer and a chartered accountant to send money to other countries in order to save tax.

Also, the cyber police submitted a detailed investigation report to the court, stating, “Baghla and Jain are a part of the conspiracy where they created the websites of GB Miner, BTC Payment Gateway and BTC Mining pool, which were being operated across the country.”

After being presented in the sessions court on Saturday evening, District Government Pleader (DGP) Ujjawla Pawar remanded them in a 14-day police custody, arguing that the Darwin Labs founders and Amit Bhardwaj had formed two companies in partnership from the profits of the Bitcoin business.

While Baghla and Jain are currently in police custody, Ayush Varshney, co-founder of Darwin Labs, has gone underground.

“There is a need to investigate from where they received the coins. The arrested engineers have been operating the websites of GainBitcoin and other companies, and so they have the entire data and record of the transactions. A detailed investigation into all these things is required,” Ujjawla said.

Amit Bhardwaj: Mastermind Of The Cryptocurrency Scam 

The Economic Offences Wing (EOW) and Cyber Cell of the Pune police, on April 5, informed that they had arrested the alleged cryptocurrency scamster, Amit Bhardwaj, in connection with $300 Mn cryptocurrency scam.

The complaint was registered under Sections 406, 420 and 34, including the Information Act 4 and 5 and the MPID Act 3. Another police complaint was registered at the Nigdi police station.

At the time, the police informed that before Bhardwaj’s arrest, seven people – including Hemant Vishwas, Hemant Babasaheb Chavan, Ajay Tanaji Saheb, Pankaj Srinandkishore and Chandrakant Bhope – had been arrested in the scam.

The scam came to light when, in July last year, Zakhil Suresh, a GainBitcoin investor, had started a petition on change.org. Signed by more than a thousand people, the petition appealed for Bhardwaj’s arrest for alleged fraudulent schemes.

Since then, hundreds of people claimed that it takes just a couple of minutes to invest in GainBitcoin. However, “you need to wait for months and months but you won’t be able to withdraw your money back”.

In 2016, Amit Bhardwaj had established a slew of startups which were dealing with all the aspects of cryptocurrencies – mining, exchange, wallet, research and development, and MLM schemes.

These include AmazeMiners, GB Miners, GainBitcoin and CoinBank under the parent company Amaze Mining And Blockchain Research Ltd, registered in Hong Kong. He had even gone on to coin a new cryptocurrency, MCAP.

As per the data accessed by Inc42 from the RoC, Nikunj Jain is the director of Pochi Mobile Private Limited, Mccandless Management Private Limited, Totopoto Technology Private Limited and Nash Ventures Private Limited.

On the other hand, Sahil Baghla is the director of Bluegape Lifestyle Private Limited, Darwin Labs Private Limited, Satoshi Studios Incubator 1 Private Limited, Odreamers Campus Private Limited and Nakamoto Media Private Limited.

It is to be noted, that last year, when stories of Amit Bhardwaj hit the Indian media regarding him being accused of running a ponzi scheme, Nikunj Jain had informed Inc42 that initially Satoshi Studios Incubator 1 Private Limited (another startup founded by Baghla and Jain) was involved as the technology vendor for GBMiners. But once they realised that they did not fully understand the fundamentals of the business, they ended their involvement with GBMiners. He also stated that Satoshi has returned the money they had raised from Amit Bhardwaj after they snapped ties with him last April.

To understand the legal implications for Jain and Baghla, Inc42 talked to N S Nappinai, Cyber Laws Advocate, Supreme Court and Bombay High Court, who shared that legally, the duo will face issues only if they were party to the crime, i.e. aware of the use of the website they have developed.

Also, Nappinai highlighted that the case brings to light the importance of regulation of cryptocurrency mining and trading as scams can happen with any asset. Furthermore, regulation is needed to bring the digital asset under scrutiny and avoid future scams, argued Pawar.

Furthermore, it is to be noted that cryptocurrency is still a very new subject and understood by only a handful of people. Thus, these limitations on the understanding of cryptocurrencies often exacerbate the problems, leading to greater scams.

Concluding Notes

While the Twittersphere has been abuzz with the news of the scam and the arrests, it is important to note that, so far, no charges have been officially filed by the police against the duo. They have been arrested due their connection with Amit Bhardwaj through a company that allegedly developed software for him. The startup founders had claimed to have cut ties with Amit Bhardwaj last year.

It might be a little early to pass judgement based on the limited facts available and the ambiguous regulations around cryptocurrency related startups/ventures/operations in India. Under this unclear regulatory environment, even blockchain ventures have come under the scanner and it is now imperative for the RBI to come out with a framework to regulate this space.