Law Insider India

Legal News, Current Trends and Legal Insight | Supreme Court of India and High Courts

What is Karnataka Bitcoin Scam? Investigations and Legal Proceedings

11 min read
bitcoin law insider

By Md. Arif Imam

Published on: February 11, 2024 at 14:18 IST

The Karnataka Bitcoin scam is a complex case involving allegations of hacking, cyber fraud, and cryptocurrency theft, with significant political implications. It centers around Srikrishna Ramesh, known as Sriki, and his alleged involvement in various illegal activities, including the theft of bitcoins.

Investigations by law enforcement agencies such as the Central Crime Branch and the Enforcement Directorate have revealed a web of corruption and cover-ups, implicating government officials and police officers. The case has sparked public interest and raised questions about the regulation of digital currencies like Bitcoin. This Article provides an overview of the Karnataka Bitcoin scam, highlighting the key players, investigative developments, and political controversies surrounding the case.

Bitcoin is a type of digital currency known as a cryptocurrency. It was introduced in 2009 by anonymous developer using the name Satoshi Nakamoto. Unlike traditional currencies, Bitcoin operates independently of any central authority, such as a government or bank. Instead, transactions are verified by network participants called miners and recorded on a public ledger called the blockchain.

In India, Bitcoin and other cryptocurrencies are not regulated by any specific government agencies like the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI). This means that there are no official protections or regulations in place for individuals or businesses involved in cryptocurrency transactions. While trading Bitcoin is not illegal in India, there are currently no laws providing legal safeguards for those who buy, sell, or hold Bitcoin.

The Indian government has introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the Lok Sabha. This bill aims to establish a regulatory framework for digital currencies issued by the Reserve Bank of India (RBI)[1]. However, the current status of the bill and its potential implications for cryptocurrency trading in India are still pending.

The Karnataka Bitcoin scam has sent shockwaves throughout India, involving a complex web of allegations, cybercrime, and accusations of government cover-ups. At the center of this controversy is a 25-year-old hacker named Srikrishna Ramesh, alias Sriki, whose actions have sparked a heated political debate.[2]

The roots of the scam trace back to 2019 when Sriki allegedly orchestrated a cyberattack on the Karnataka government’s e-procurement site. During this attack, he is accused of siphoning off more than Rs 11.5 crore.

The incident remained relatively quiet until November 2020 when the Central Crime Branch (CCB) made a significant move by apprehending Suneesh Hegde, a man involved in procuring hydro marijuana through the dark web. Hegde, during interrogation, pointed fingers at Sriki, revealing his involvement in drug-related activities.

Srikrishna Ramesh’s arrest on November 17, 2020, marked a turning point in the case. As investigations unfolded, it became evident that Sriki was not only linked to drug peddling but also a series of online crimes, including cyber fraud and cryptocurrency theft. The accused hacker had reportedly hacked into the government’s e-procurement site in 2019, aiming to transfer substantial amounts, as disclosed in a “voluntary statement” to the police.

The most intriguing aspect of the scam revolves around the missing bitcoins. In November 2020, the CCB claimed to have seized 31 bitcoins worth nearly Rs 9 crore from Sriki. However, this claim was later retracted, with the CCB alleging that the accused had misled them into believing he had transferred the coins. The Congress party seized on this controversy, accusing the Bengaluru police of misappropriating the bitcoins that were initially seized during the investigation.

Sriki’s involvement in cryptocurrency theft took a dramatic turn when he allegedly confessed to hacking and illegally transferring over 5,000 bitcoins to various wallets. Each bitcoin, valued at nearly $65,000, added a significant financial dimension to the already intricate case. The missing bitcoins became a focal point of the political blame game, with the Congress demanding an independent investigation by a Supreme Court-monitored Special Investigation Team (SIT).[3]

The political landscape intensified as the Congress accused Chief Minister Basavaraj Bommai’s government of looking the other way and attempting to cover up the scandal. Bommai, who was the Karnataka Home Minister when the case surfaced, faced allegations of neglecting the issue. In response, Chief Minister Bommai defended his government’s actions, emphasizing their openness and cooperation with investigative agencies.

As the controversy continues to unfold, the Karnataka Bitcoin scam underscores the challenges posed by cybercrimes and the complex interplay between politics and law enforcement. The missing bitcoins and allegations of government cover-ups add layers of intrigue to an already convoluted case. The outcome of this investigation will likely have far-reaching consequences on the political landscape in Karnataka, making it a topic of significant public interest and concern.

The Karnataka Bitcoin scam revolves around Srikrishna Ramesh, also known as Sriki, a 25-year-old hacker, and several other key players. Sriki is accused of various crimes including cyber fraud, drug dealing, and stealing cryptocurrency. He gained attention for hacking the Karnataka government’s procurement website and allegedly stealing millions.

Another important accused is Suneesh Hegde, who was arrested for buying drugs online and revealed that Sriki helped him with the transactions. This link between Sriki and drug trafficking is significant.

The political aspect involves Chief Minister Basavaraj Bommai’s government, accused by the Congress of covering up the scandal to protect BJP officials and police officers who might be involved. The Congress demands an impartial investigation but accuses the government of bias.

The Central Crime Branch of Bengaluru Police initially arrested Sriki and claimed to have seized bitcoins from him. However, doubts arose when they later withdrew their claim, leading to allegations of corruption and mishandling of evidence.

The controversy mainly revolves around the missing bitcoins. The initial seizure of 31 bitcoins worth millions was retracted, sparking suspicions of foul play. The Congress accuses the police of corruption in this matter. The Karnataka Bitcoin scandal involves a complex mix of individuals, political accusations, and law enforcement challenges. The missing bitcoins and political tensions make it a major issue in Karnataka, drawing public attention and scrutiny.

The investigation into the Karnataka Bitcoin scam has taken a significant turn with the Special Investigation Team (SIT) of the Criminal Investigation Department (CID) focusing on the suspected involvement of individuals like inspector Prashanth Babu and cyber expert Santhosh Kumar KS.

According to the Director General of Police (DGP), Inspector General Alok Mohan, CID-SIT arrested inspector Prashanth Babu from the Technical Support Centre and Santhosh Kumar KS, CEO of GCID Technologies Pvt Ltd. The investigation aims to uncover the details surrounding the Bitcoin scam.

An FIR has been filed under various sections of the Indian Penal Code (IPC), alleging wrongful confinement, criminal breach of trust by a public servant, mischief, common intention, omission, cooperation in crime, destruction of evidence, and destruction of documentary evidence.

The case revolves around the alleged Bitcoin scam that emerged in 2020, implicating senior BJP leaders, including the former Karnataka CM Basavaraj Bommai. It was claimed that ‘ill-gotten money through cryptocurrencies’ was laundered with the assistance of a Bengaluru-based hacker known as Srikrishna or Sriki.

Sriki, a software engineer turned hacker, was arrested by the Central Crime Branch (CCB) police on November 18, 2020, in connection with a drug peddling case. During interrogation, he confessed to his involvement in various online crimes, including the hacking of a cryptocurrency exchange called Bitfinex in 2016.[4]

The situation turned political when allegations surfaced against the Bengaluru police, suggesting they withheld information about Sriki’s involvement in the Bitcoin hack until August 2021, despite knowing about it in December 2020.

Apart from inspector Prashanth Babu, the FIR implicates other inspectors associated with the CCB wing in Bengaluru, including Lakshmikanthaiah, Chandradhar, and Shridhar K Pujar, who are currently being questioned but not arrested yet.

Prashanth Babu is accused of purchasing a computer allegedly used in hacking, while Santhosh Kumar KS is accused of remotely operating the laptop, accessing Sriki’s Amazon server, and erasing evidence. Both are also accused of transferring over ₹2.8 lakh worth of Bitcoins from their accounts to Kumar’s account.

In addition, the FIR implicates DSP Shridhar K Pujar for unlawfully detaining Sriki and his associate, Robin Khandelwal. The officers are also linked to two other cases filed in 2020, involving complaints related to Bitcoin trading and data theft from gaming sites.

In essence, the Karnataka Bitcoin scam investigation involves a complex web of events, including arrests, allegations against police officers, and claims of unauthorized transactions, all stemming from the alleged Bitcoin scam of 2020.

Following the investigation into the Karnataka Bitcoin scam, there have been developments and actions taken by the Special Investigation Team (SIT) of the Criminal Investigation Department (CID).

The developments in the Karnataka Bitcoin scam investigation and its current status:

Actions Taken by SIT: The SIT, part of the CID, arrested inspector Prashanth Babu and cyber expert Santhosh Kumar KS based on their suspected involvement in the Bitcoin scam. The investigation, led by Director General of Police (DGP) Inspector General Alok Mohan, is still ongoing, indicating that authorities are actively working to uncover more details about the scam.[5]

FIR and Legal Proceedings: An FIR was filed against the accused individuals under various sections of the Indian Penal Code (IPC), formally recording the alleged offenses and initiating legal proceedings against them.

Implications for Other Officers: Besides Babu and Santhosh Kumar, other inspectors associated with the Central Crime Branch (CCB) in Bengaluru, including Lakshmikanthaiah, Chandradhar, and Shridhar K Pujar, are under scrutiny. While they are being questioned, they haven’t been arrested yet, suggesting that authorities are investigating their potential involvement.

Details of Accusations: Prashanth Babu is accused of purchasing a computer used in hacking websites, while Santhosh Kumar allegedly operated the laptop remotely to erase evidence. Both are accused of transferring Bitcoins, and Lakshmikantaiah and Chandradhar are implicated in facilitating this transaction.

Role of DSP Shridhar K Pujar: DSP Shridhar K Pujar is accused of unlawfully detaining Sriki and his associate and is linked to two additional cases involving Bitcoin trade deception and data theft.

Current Status: The investigation is ongoing, with legal proceedings in progress. The arrests and FIRs indicate that authorities are actively pursuing leads to understand the scope of the Bitcoin scam and hold those involved accountable.

The investigation has led to arrests, FIR filings, and implications for multiple officers associated with the CCB wing in Bengaluru. Authorities are dedicated to uncovering the truth behind the Karnataka Bitcoin scam and ensuring accountability.

The Enforcement Directorate (ED) in 2022 investigated bank accounts held abroad by family members of Srikrishna Ramesh, the international hacker arrested in Bengaluru in November 2020, as part of its money laundering probe. The agency is particularly interested in a transaction of 50,000 British pounds (around Rs 47 lakh) received by Srikrishna’s brother Sudarshan Ramesh, prompting the ED to prevent Sudarshan from leaving the country.

  1. Investigation by the Enforcement Directorate (ED): In 2022 the Enforcement Directorate (ED) launched an investigation into accounts held in foreign banks by family members of international hacker Srikrishna Ramesh. Srikrishna Ramesh, alias Sriki, was arrested in Bengaluru in November 2020. The ED was probing his alleged involvement in money laundering activities.[6]
  2. Preventing Sudarshan Ramesh’s Travel: Sudarshan Ramesh, Srikrishna Ramesh’s brother, received 50,000 British pounds (around Rs 47 lakh) in his account, prompting the ED to prevent him from leaving the country. The ED expressed dissatisfaction with Sudarshan’s responses regarding the funds received in his account.
  3. Legal Proceedings: Sudarshan’s inability to cooperate with the ED’s investigation led to legal actions preventing his return to the Netherlands, where he was employed. The ED informed the Karnataka High Court about the ongoing investigation and the need for detailed probes into transactions involving foreign banks.
  4. Allegations and Political Ramifications: Srikrishna Ramesh’s cases had political implications, with the opposition Congress party accusing the ruling BJP and the police of favoring the hacker after his arrest in a drug case involving Bitcoin transactions. The disappearance of Bitcoins claimed by Srikrishna also raised questions and added to the political controversy.
  5. ED’s Money Laundering Probe: The ED’s investigation focused on money laundering activities associated with Srikrishna Ramesh. Srikrishna, along with his associates, was accused of stealing funds from various sources using hacking techniques. The ED seized a portion of the stolen funds but continued to investigate the movement of the remaining amount.
  6. International Involvement: Srikrishna Ramesh, a computer science degree holder from the Netherlands, returned to India in 2017. He claimed involvement in hacking activities, including the hacking of the Bitfinex cryptocurrency exchange. US agencies were also involved in investigating the theft of Bitcoins from Bitfinex in 2016.
  7. Recovery Efforts: In February 2022, US agencies reported the recovery of a significant portion of the stolen Bitcoins from two US nationals. This recovery marked progress in the efforts to retrieve the stolen funds.[7]

The incident highlighted the complexities of cybercrime investigations, international cooperation in addressing financial crimes, and the challenges posed by emerging digital currencies like Bitcoin.

The Karnataka High Court clarified that no interim orders were granted by the court regarding cases filed to quash probes against a hacking gang involved in cryptocurrency exchanges, online poker sites, and state e-governance sites. A hearing was held for pleas filed by hacker Srikrishna Ramesh (Sriki) and three associates seeking to quash investigations into their alleged involvement in hacking cases filed by the Bengaluru Central Crime Branch police and the Criminal Investigation Department.[8]

The High Court clarified that earlier interim orders mentioned during hearings in September 2022 were not granted in the petitions for quashing of the cases. Doubts arose regarding whether the newly formed SIT by the Congress government could conduct investigations into the hacking-related crimes and alleged corruption during the BJP’s tenure from 2019 to 2023.

Sriki and his associates face accusations of hacking crypto exchanges, online poker sites, and the Karnataka government’s e-procurement cell, allegedly stealing significant sums of money through illegal means. The investigations led to the recovery of some stolen funds, but there have been allegations of corruption and diversion of recovered cryptocurrency.

The CID and CCB filed charge sheets against Sriki and others involved in the hacking incidents, and the Enforcement Directorate (ED) filed a charge sheet related to the e-procurement cell theft. While some of the stolen funds have been recovered, there hasn’t been significant progress in recovering the stolen cryptocurrency.

The case is ongoing, with the High Court setting the next hearing for July 19, 2024. The investigation into the Karnataka Bitcoin scam involves allegations of hacking, theft, and corruption, with legal proceedings underway to address the complexities of the case.

The Karnataka Bitcoin scam represents a critical juncture in India’s fight against cybercrime and financial fraud. The intricate web of allegations, investigations, and legal proceedings underscores the challenges of regulating digital currencies in today’s rapidly evolving technological landscape. The involvement of government officials and law enforcement agencies in alleged cover-ups and corruption has eroded public trust and highlighted the need for greater transparency and accountability in governance.

As the case continues to unfold, it serves as a cautionary tale about the risks associated with cryptocurrency transactions and the importance of robust regulatory frameworks to safeguard against abuse and exploitation. Moving forward, it is imperative for authorities to conduct thorough and impartial investigations, hold perpetrators accountable, and implement effective measures to prevent similar incidents in the future. The Karnataka Bitcoin scam serves as a stark reminder of the dangers of unchecked digital innovation and the urgent need for responsible governance in the digital age.

  1. Crypto Bill India: What Is Crypto Bill & How It Works – Forbes Advisor INDIA
  2. The incredible saga of ‘Sriki’, the hacker at centre of Karnataka bitcoin scam – The Week
  3. What Is The Bitcoin Scam That Has Rocked Karnataka Govt? (thequint.com)
  4. Learnt coding in Class 4, says hacker Srikrishna at centre of Bitcoin row | Bengaluru – Hindustan Times
  5. Karnataka Bitcoin scam: Inspector, cyber expert sent to CID custody till Jan 31 | Bengaluru – Hindustan Times
  6. Don’t scuttle probe into Karnataka Bitcoin scandal (deccanherald.com)
  7. Karnataka Bitcoin case: ED probes foreign transactions of hacker Srikrishna’s brother | Bangalore News – The Indian Express
  8. No interim order exists on cases of Bitcoin scam handed over to SIT, clarifies Karnataka HC | Bangalore News – The Indian Express