U.S. authorities are selling off US$56 million in seized cryptocurrency, allowing them to compensate victims of a crypto fraud with traditional currency.

The U.S. Department of Justice (DoJ) said a district court judge granted its request for the authority to liquidate the crypto proceeds that were seized from a promoter of cryptocurrency BitConnect.

“This liquidation is the largest single recovery of a cryptocurrency fraud by the United States to date,” the DOJ said, noting that the BitConnect scheme, which allegedly defrauded investors of over US$2 billion, is the largest criminal case involving crypto fraud in the U.S.

One of the scheme’s promoters, Glenn Arcaro, 44, of Los Angeles, pleaded guilty to wire fraud conspiracy for his role in the scheme earlier this year. He is scheduled to be sentenced on Jan. 7, 2022.

“With entry of the court’s interlocutory sale order, the government will begin the process of seeking to make whole victims of the BitConnect scheme by selling the cryptocurrency and holding the proceeds in U.S. dollars,” the DoJ said.

“The government will maintain custody of the seized proceeds in cryptocurrency wallets and intends to use these funds to provide restitution to the victims pursuant to a future restitution order by the court at sentencing,” it added.

U.S. authorities alleged that Arcaro and others misled investors by touting BitConnect’s proprietary technology, which could purportedly generate outsized returns by trading on the volatility of crypto markets.

“In truth, BitConnect operated a textbook Ponzi scheme by paying earlier BitConnect investors with money from later investors,” the DoJ said.

In a parallel action, the U.S. Securities and Exchange Commission filed civil charges against Arcaro and several others in connection with the scheme. Those allegations have yet to be proven.