"Crypto Crooks" is sponsored by Chainalysis.

It takes a lot of concurrent factors to topple an empire – even a fraudulent one.

As we continue the sordid tale of BitConnect’s rise and demise, we talk to early skeptic @BCCPonzi about the financial, technical and plain common-sense issues that plagued BitConnect’s premise from the beginning. We also delve into what exactly happened to Madeline Bigatton, the wife of a BitConnect sales bigwig who mysteriously disappeared off the cliffs of Australia.

Clips:

• BitConnect Annual Ceremony 2017
• Bitcoin swindle: the mystery behind John Bigatton's role in the BitConnect scheme | 7NEWS Spotlight

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.

Content Warning: This episode includes discussions of suicide and suicidal ideation.

DAVID:

It seems that John Bigatton never met a get-rich-quick scheme he didn’t like.

Over the years he turned his megawatt smile and even wider lapels to selling vitamins, foreign exchange trading programs, and gym memberships. Selling dreams seemed to come naturally to Bigatton, and he was certainly living proof that they come true: his sales skills had earned him a nice life, including a sprawling house in Carss Park, a tony suburb south of Sydney, where he lived with his two daughters and wife Madeline.

But that was all just prelude. By 2017, John Bigatton was selling the biggest dream yet: the next Bitcoin.

JOHN BIGATTON CLIP:

“Today, we have an opportunity that our kids and our kids’ kids’ are going to be embracing, and that’s cryptocurrency and the digital world … This is like the stock market, on steroids, times ten.”

DAVID:

That’s John delivering an inspirational upsell from BitConnect’s first and only annual ceremony, which was really a mix of celebration and extravagant sales pitch, in Pataya, Thailand on October 28 of 2017. Cryptocurrency had just begun to truly capture the imagination of the public around the world. People everywhere were fascinated, enthralled, and ready to buy what John Bigatton was selling – hook, line, and sinker.

But of course, what Bigatton was selling was a lie. An entire stack of lies, in fact, from BitConnect’s promised investment returns to the magical trading bot that supposedly delivered them. Those lies eventually caught up with BitConnect’s creators and promoters, as trusted leaders and governments began asking hard questions.

When things got too hot, BitConnect’s creators abandoned ship – in some cases, never to be seen again. The BitConnect system shut down, and investors who thought they’d struck it rich were left with nothing.

That left John Bigatton and promoters like him facing serious legal fallout, and intense anger from those they’d drawn into the scheme. The shame and stress of that backlash was so intense that, just a few days after BitConnect collapsed, Bigatton’s wife threw herself from a rocky overlook a short drive from that nice home outside of Sydney. That is, at least, the official account of what happened.

Much like BitConnect itself, though, Madeline Bigatton’s real fate could be an entirely different story.

Hello and welcome to Crypto Crooks, a new podcast from CoinDesk. Our first season focuses on BitConnect, a Ponzi and pyramid scheme that collapsed in early 2018. This is Episode 2 – What Happened to Madeline Bigatton?

I’m David Z. Morris, CoinDesk’s Chief Insights Columnist. I’ve been reporting on cryptocurrency since 2013, and I’ve followed it 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. Over the years, I’ve seen the same shady tactics, bad ideas, and deceptive rhetoric again and again.

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 human greed.

Episode 2, Part 1.

Cryptocurrency is a fairly new technology – at most, if we count from the launch of Bitcoin in 2009, 14 years old. The claims being made about it are huge, but even advocates admit it will be years before every kink is worked out of the technology, adoption has become widespread, and there are clear cases where it makes sense to use crypto.

If you believe crypto advocates like me, that means there will be big future growth in the demand for networks like Bitcoin and Ethereum. The prices for a share of those networks right now is mainly based not on demand from end users, but on the interest of speculative investors.

That dynamic can make it very easy to trick people. If you create a new cryptocurrency or blockchain system, you don’t necessarily have to show that it’s popular among users now. If you convince speculators that it will be worth something to users down the road, it can move the price enough to attract even more speculators – even if there are practically no present-day users at all. And because crypto is easily accessible to individual members of the public, anybody can be a speculator.

Many people who noticed crypto prices moving up in 2017 weren’t interested in the novel computer science that made it possible for a swarm of anonymous machines to create a global payments system. They just cared about price. And really, who can blame them: at the beginning of 2017, one Bitcoin cost just over $1,000, but by the day of the BitConnect ceremony, it had skyrocketed to over $6,000 per token – a truly exceptional investment return of 500% in ten months. At the same time, a new system called Ethereum had made it easier for anyone to launch a crypto-token, and some of those tokens were generating even crazier short-term returns: 2000%, 3000%, even 4000% annually.

Fortunes were being made. The public might not have understood how this strange and complex technology worked, what it was supposedly for, or why digital tokens would gain value – but they knew someone was making money, and they wanted in. Whether they were betting on Ethereum, XRP, Bitcoin, or BitConnect, this sort of buyer didn’t look too hard, didn’t even use the tokens, mostly just buying them on centralized exchanges like Coinbase and leaving them there until they became worth – the buyers hoped – a whole lot more.

All that was just fine with John Bigatton and his fellow BitConnect promoters. In fact, ignorance was one of the pillars of their success. Promoters constantly mentioned BitConnect in the same breath as coins like Bitcoin and Ethereum that were generating headlines and huge returns. BitConnect’s interface mimicked many elements of centralized crypto exchanges, making everything seem more credible. And many BitConnect victims were in lower-income countries, where both technical knowledge about crypto and access to reputable cryptocurrency exchanges was particularly limited.

But John Bigatton also sniffed out victims closer to home. Last episode, we met Steve and Dani Bow, who, like Bigatton, lived in Sydney. Bigatton convinced them to deposit more than $130,000 AUD into BitConnect.

The Bows, like thousands of other people, were persuaded by the combination of technological hype and high-powered sales tactics. The value of cryptocurrencies like Bitcoin and Ethereum were skyrocketing in 2017, but the Bow’s didn’t know – maybe they couldn’t have known – that BitConnect was nothing like Bitcoin or Ethereum.

BitConnect did mimick those systems in some important ways – it had a publicly viewable blockchain, for instance, and a page on the website Github that seemed to make the system’s code publicly viewable. This “open-source” nature is key to ensuring a blockchain is trustworthy, because you can see exactly what it’s programmed to do.

But this was only the illusion of transparency – there were huge aspects of BitConnect’s system that weren’t public. That, in fact, even insiders hadn’t seen up close. Most crucially, BitConnect’s founders had refused to explain the workings of what they called the “trading bot.” This was the algorithm, supposedly able to profit wildly from even downward changes in the price of Bitcoin. It was said to be generating all the fantastic returns investors were celebrating. The secrecy surrounding the trading bot was a big part of why, just three months after John Bigatton described BitConnect as the stock market “on steroids times 10,” it all collapsed.

There had been warnings about BitConnect – many of them, in fact. Some of the most important warnings came from a very persistent pseudonymous critic who went by @bccponzi on Twitter. We’ll learn more about them and their battle to expose BitConnect in our next episode.

But a critical moment came on November 2nd of 2017, when Ethereum founder Vitalik Buterin wrote the following in response to a tweet from @bccponzi: “Yeah, if 1%/day is what they offer then that's a ponzi.”

BCCPONZI:

“I think I was asking for a couple big crypto people, like Vitalik and CZ, to speak out about BitConnect, that it was a Ponzi scheme … Indeed it turned out to be very helpful, because it definitely sped things up. Not just Vitalik, but there were a couple of others, and that really helped.”

DAVID:

Just days later, on November 11 of 2017, the U.K. Companies House declared that a U.K. entity registered under the BitConnect name would be dissolved if it couldn’t prove its legitimacy.

The order drew attention to BitConnect’s U.K. corporate filings themselves. One filing attributed 75% ownership of BitConnect’s U.K. entity to a man named Ken Fitzimmons, a name that hasn’t otherwise been connected to BitConnect. Another filing gave two different birthdays for what appears to be the same BitConnect official.

The gathering clouds of suspicion drove the price of the BitConnect token down by almost 15% in the following days, but otherwise, operations seemed to continue as normal. Meanwhile, many BitConnect users took to sites like Twitter to insist that everything was fine, despite the warnings. This continues to be a disturbing theme in crypto scams – the victims themselves often defend the people robbing them.

BCCPONZI:

“The response is almost always, nobody has ever lost anything with it, so it all went well, why should I lose money … And my reply usually is, it works, until it doesn’t work. And that’s usually the case with Ponzi schemes. Nobody loses anything until everybody loses everything.”

DAVID:

Once government regulators take notice, these things almost always end the same way. The final straw for BitConnect came, somewhat surprisingly, from Texas. On January 4 of 2018, the Texas Securities Board issued an emergency cease-and-desist order that contained much more specific allegations than the U.K. order, including that BitConnect had not explained the source of investment returns, was selling an unregistered security, and was using online ads to recruit promoters.

These orders coincided with something else that was very bad for BitConnect: The price of Bitcoin began to decline.

BCCPONZI:

“Mostly, BitConnect, when it fell down, it was the beginning of January, I believe. The biggest reason was the drop in price of Bitcoin, why it collapsed, and why they cashed out.”

DAVID:

So, BCCPonzi believes that law enforcement was far less important in bringing down the BitConnect scam than the price of Bitcoin. BitConnect grew fast from September to December of 2017. But according to CoinDesk’s data, the price of Bitcoin peaked on December 17, 2017, at $19,689. By early January, that price had declined by nearly 25%.

BCCPONZI:

“One of the reasons why it could last so long is because the bitcoin price increased … the higher the bitcoin price, the better it was for BitConnect because it was cheaper to pay back loans. Because people deposited bitcoin and exchanged those for bitconnect at very low prices. They had a lot of bitcoin. But when the price of bitcoin fell down, the dollar value of what they had left fell down as well.”

DAVID:

Beyond the financial mechanics, the falling price of Bitcoin also quickly dampened the public’s excitement about cryptocurrency. That meant fewer new investors giving BitConnect their money. And because it was a Ponzi scheme, BitConnect relied entirely on that inflow of fresh cash.

Letting some people cash out successfully is key to a successful Ponzi scheme, because it creates the kind of testimonials that draw in new victims. But as soon as new deposits start declining, the

Ponzi won’t have enough cash to pay investors out. According to BCCPonzi, scammers keep a very close eye on the level of new investors, and are ready to disappear the second the cash flow starts to dry up.

By January of 2018, BitConnect was facing a perfect storm: law enforcement closing in, Bitcoin crashing, and declining interest from the public. Within two weeks of the Texas order, BitConnect declared it would shut down its lending program. Though the organization made big promises about the future, in fact, the entire operation disappeared – taking investors’ money with it.

John Bigatton had sold BitConnect investments to average Australians, including his own neighbors and friends. Victims began overwhelming the Bigatton family with threats. In a message that surfaced later, Madeline Bigatton described the victims’ responses as efforts to “blame and accuse” her husband for the scheme’s failure. According to one source, the accusations began gnawing at Madeline. She was, she supposedly told a family member, in “a dark place.”

Part 2: Why is BitConnect not Bitcoin?

BitConnect wasn’t the first cryptocurrency scam to invoke the rising value of cryptocurrencies like Bitcoin and Ethereum in an attempt to rope in victims. Some make it more explicit than others. Former action star Steven Seagal – a notorious fabulist in his own right – was promised at least a quarter of a million dollars to promote a fraud called “Bitcoiin 2Gen,” which wound up tricking victims out of $11 million dollars. Seagal settled with the U.S. Securities and Exchange Commission in February of 2020, disgorging $314,000 in restitution.

BitConnect was particularly sophisticated in its trickery. In fact, many elements of the scheme that might have sounded innovative were actually intended to conceal its deceptive nature.

So how exactly was BitConnect different from Bitcoin?

It’s hard to know where to start. But the most important and fundamental difference is that Bitcoin is not issued by any company or group of individuals. While BitConnect did not have a conventional corporate or legal structure, it was run by a specific group of people. This is always the first thing to look for when evaluating any crypto project: the more control lies in the hands of a small group, the easier it is for them to steal your money.

It’s not always easy to figure out who’s really in control. But Bitcoin remains the gold standard for a so-called “decentralized” cryptocurrency – one that is not and cannot be controlled by any single entity. One way to explain this is to think of Bitcoin, not as a bank that issues Bitcoin tokens, but as a protocol that computers can use to move money around the internet.

You may be more familiar with another protocol: email. Any email client can read email from any other client because they all use the same format and parameters, such as subject lines and date stamps. In the same way, there are many different Bitcoin clients, including dozens of varieties of so-called “wallet” software that stores user account information. Different clients can interact because they’re using the same Bitcoin protocol.

That protocol was invented by a computer scientist, or maybe a group of computer scientists, who went by the pseudonym “Satoshi Nakamoto,” before leaving the project in 2011. The code was “open source” from the beginning, meaning that anyone could look at every line to look for bugs or other problems. No one has ever been able to convincingly determine Satoshi’s real identity.

Since Satoshi’s departure, the Bitcoin software has been updated and maintained by coders across the world, not by any individual or company. Anyone can suggest upgrades to the Bitcoin protocol, and can even make a “fork” of Bitcoin, whether copying its software in whole or changing some element of it. Ultimately, Bitcoin users get to decide what software they want to run.

BitConnect made some efforts to mimic Bitcoin’s decentralization. For one thing, BitConnect actually did have a blockchain, which is more than a prior big scam called OneCoin could claim. The blockchain was publicly viewable, tracking the movements of the “BitConnect Coin,” and even allowing the token to be traded on major cryptocurrency exchanges. BitConnect even had a Github page, implying that there were freelance coders collaborating on BitConnect just as passionately as they were exchanging ideas about Bitcoin.

But this was all fundamentally misleading. Because while the BitConnect token moved on a public blockchain, everything that really mattered was shrouded in mystery.

Above all, this was because the BCC token was ultimately only a way to track the loans that were at the heart of what BitConnect claimed to be doing. To get BitConnect Coin, users had to send Bitcoin to BitConnect, supposedly as a “loan” that would be ‘locked’ for weeks or months. This was supposedly so that the BitConnect trading bot could use that Bitcoin to generate profits. But users weren’t shown exactly where their Bitcoin wound up.

That’s a problem for a lot of reasons, but the most basic one is summed up in an aphorism common among Bitcoin users: “Not your keys, not your coins.” That is, as soon as you hand over control of your cryptocurrency to a third party, you can’t be certain they’ll take good care of it, or give it back. The phrase is often used in reference to crypto exchanges, which seem to fail regularly thanks to either incompetence or fraud, and take depositors’ money with them.

For example, after the Canadian exchange Quadriga CX went bust in 2019, it was discovered that its sole administrator had been using customer funds both for personal speculation, and to pay for his lavish lifestyle. Later it would become clear that the BitConnect team had been doing more or less the same thing.

But BitConnect’s biggest, craziest lie was the so-called trading bot. The bot could supposedly make money from trading Bitcoin, whether the market was moving up or down, by capturing sometimes very small price fluctuations.

In some limited sense, this is theoretically plausible. Stock traders, for instance, can make money when a stock price falls if they have “shorted” that stock. The closest parallel to what BitConnect said it could do is probably what’s known as high-frequency trading, a technique that emerged in the 1990s and used elaborate algorithms and large amounts of money to bet on very small, moment-to-moment moves in the prices of financial assets. High frequency traders made just fractions of a penny on these bets, but could sometimes turn that into big profits through huge volumes.

With the trading bot, then, BitConnect was associating itself with not one, but two cutting-edge technologies – cryptocurrency and algorithmic trading. Both had shown they could be wildly profitable investments. But there were also major reasons for skepticism of those claims.

Most obviously, as we heard BitConnect founder Satish Kumbhani explain in our first episode, BitConnect refused to show the trading bot to anyone. Again, this makes a degree of sense – for high frequency trading firms on Wall Street, the specifics of an algorithm are considered extremely valuable secrets. Trading algorithms are essentially strategies, and revealing them to anyone else means they could be copied. If enough people copied them, they wouldn’t be profitable anymore.

But BitConnect wasn’t just hiding the trading bots’ specific strategies. BitConnect could have shown it making trades without revealing its algorithm, or the logic that led it to make specific decisions. But there is no evidence that anyone, including high-ranking BitConnect promoters like John Bigatton, ever saw the trading bot in action at all.

Everything about BitConnect, from its crypto flourishes to its invocation of complex trading, was intended to make it seem legitimate. And to someone without a finance background, the difference between the real thing and a fake would definitely have been hard to spot.

But there is one golden rule when it comes to investment, one that doesn’t take much technical or financial insight to follow: If it seems too good to be true, it probably is. With BitConnect, the clearest red flag was just how much money they claimed the trading bot could make.

BCCPONZI:

“Especially the 1% daily, that’s impossible. There’s no one in the world you can actually achieve 1% daily with trading every day for large amounts of money. That’s just completely nonsense, it’s not even close. Even 0.1% is impossible, let along 1%. So that’s a huge red flag. That’s the biggest red flag of all.”

DAVID:

BitConnect was actually claiming it could outperform even the high-frequency-traders it was imitating. BitConnect’s promise of 1% gains compounded daily would add up to a staggering three thousand, six hundred and seventy-eight percent annual return. According to a draft study by the Commodity Futures Trading Commission, the very top HFT funds have returned up to 120% in their best years. That’s extremely good, but it’s not even close to what BitConnect was promising.

And even that is now largely in the past: In the late 1990s and early 2000s, dozens of firms followed those high returns into high-frequency trading, and the increased competition made the practice less profitable.

This invites the final point that should have scared away BitConnect’s victims, and that you should ask about any investment. If BitConnect’s founders had really discovered a way to generate consistent, risk-free returns of thousands of percentage points per year, why would they share that opportunity with complete strangers? Because just as more competition drove down the profitability of high-frequency trading, sharing any specific trading strategy too widely, or trying to do it with too much money, makes it less profitable. By the same token, the more money BitConnect fed into its theoretical trading bot, the less profitable it would have become.

Part 3: Is Madeline Bigatton really dead?

When BitConnect closed its lending program, it claimed to still have big plans for the BCC tokens it had returned to customers. But it didn’t keep that pretense up very long, and most people quickly realized that their money was simply gone.

That included investors who John Bigatton had helped convince to hand their money over to BitConnect. That led to immense pain for the investors, but it had also become a burden to John’s wife Madeline as accusations against her husband mounted. According to later statements by a relative of Madeline Bigatton, the family had begun receiving angry phone calls from BitConnect victims.

The Daily Mail later obtained a message Madeline sent to a friend describing the distress this backlash was causing her – though she did anything but blame her husband.

She said she was “absolutely shocked at people’s behavior. I understand how people can get emotional when they lose [sic] money, but to blame and accuse other people for their own actions is unbelievable. Even more shocking are the lies being said. It really cuts me up, as John doesn’t have a single bad bone in his body and would only be involved in something if he truly believed that it would have a positive impact on people’s lives. I really do appreciate you reaching out to check in on us. I know that we will work through this and come out of it stronger.”

Much like the BitConnect investors who were ultimately robbed, Madeline Bigatton seemed unable to accept the idea that she had so badly misjudged someone – in this case, her own husband. She certainly had motivation to not ask too many hard questions. John Bigatton had been selling sketchy investment products for years, and it had earned them a very nice life.

And BitConnect may have been his biggest score of all. Bigatton was the lead BitConnect promoter for Australia, collecting a percentage of all the “investments” in BitConnect made by anyone in the country. Bigatton’s counterpart in the United States was a man named Glen Arcaro, who in 2022 would be sentenced to more than three years in prison for his role in the scheme. Arcaro admitted to earning a staggering $24 million dollars in BitConnect commissions over just a few years. Australia has a much smaller population than the U.S., but this still implies Bigatton himself could have earned millions.

However nice that money was, though, it seems Madeline Bigatton had her limits. An unnamed relative told the Daily Mail Australia that, the day before her disappearance, Madeline said that “I’m not in a good place, I’m in a dark place.”

These divergent reactions are just one reason suspicion has swirled around Madeline’s disappearance. Despite hints of distress, family members can’t believe Madeline would abandon her two daughters, whatever the circumstances.

Madeline also left no suicide note. Her body has never been found, though the crashing waves below Karrell seem likely to have returned it to shore.

But John Bigatton’s behavior after his wife’s disappearance generated even more suspicion. Acquaintances claimed that in the days after Madeline’s disappearance, John said he believed she had killed herself – but given that acceptance, he behaved strangely. Madeline’s uncle told the Daily Mail that soon after her disappearance:

“I confronted him (John) and said: "What happened to my niece, I just want to know?" and it was then that he told me to: "F**k off",”.

Also disturbing to many observers was a photo Bigatton posted to Facebook just one week after his wife’s disappearance. John Bigatton held a large family gathering for Easter Sunday – arguably strange in itself. In a photo of the party he shared online, John is close to the camera, wearing a massive, seemingly unbothered smile. Behind him, over two dozen family members are posing, most of them also smiling widely. One woman is playfully thrusting her middle finger at the camera.

At the center of the photo, though, two figures seem out of place – a pair of girls, one seemingly in her teens, the other younger. Their faces are obscured in published copies of the photo, but they seem downcast, not looking at the camera, shoulders slumped, huddling together. The two figures appear roughly the same age as the Bigattons’ two daughters, and share their dark hair.

So why was John Bigatton seemingly unfazed by his wife’s disappearance and apparent suicide? Was he just such a good salesman that he couldn’t help displaying a false face on one of the darkest days of his life? Or was there something else going on?

There has inevitably been speculation that John Bigatton may have played a role in his wife’s death, though he has never been charged. Perhaps, some have speculated, she was considering leaving him, or even threatening to go to the authorities, and he killed her, setting it up to look like a suicide.

But BitConnect victims have also floated a more compelling third possibility: Maybe Madeline and John faked her suicide together.

Bitcoin is not as anonymous as it was once believed to be, but it’s still possible to hide it from authorities. And a man like John Bigatton may have been familiar with other methods of hiding and moving wealth. If Madeline is still alive today, she might be living comfortably off the millions that John Bigatton reaped as part of a catastrophic scam – and protecting that wealth from the authorities.

Dani and Steve Bow, the friends who John Bigatton swindled out of $130,000 AUD, are among those who didn’t believe Madeline really killed herself.

When she left her wedding ring on the center console of her SUV, was Madeline Bigatton accusing her husband? Was it a sign that John Bigatton’s crimes that had led her to her death? Or was she signaling that she remained loyal to him, wherever she may have gone?

For now, the mystery remains unsolved. But in November of 2020 John Bigatton was indicted on six charges of investment fraud by the Australian Securities and Investments Commission, or ASIC. The charges carry the threat of nearly fifty years in prison. Though the coronavirus pandemic delayed proceedings, the most recent update from ASIC signals that John Bigatton will go to trial for fraud in July of 2023.

Though Madeline Bigatton’s disappearance will not be on the docket, it seems very likely we’ll learn more about it when her husband finally faces the music.