First Ponzi Scheme Involving Bitcoins Results in Texas Man's Arrest
A Texas man is facing fraud charges related to what federal investigators describe as the first Ponzi scheme in history involving bitcoins, virtual currency that is traded on the Web.A Texas man and his company has been charged by the U.S. Securities and Exchange Commission (SEC) for defrauding investors in a Ponzi scheme involving bitcoins, a virtual currency used online. Federal investigators said this was the first Ponzi scheme they have uncovered that involves bitcoins, but as in all Ponzi schemes the accused promised investors unrealistic profits. According to the SEC, Trendon T. Shavers of McKinney, Texas, was founder and operator of Bitcoin Savings and Trust (BTCST) and sold bitcoin-denominated investments on the Internet using the names "Pirate" and "pirateat40." Shavers raised at least 700,000 bitcoins in BTCST investments, equivalent to more than $4.5 million based on the average price of bitcoins in 2011 and 2012 when the investments were offered and sold. By today's calculations, the value of 700,000 bitcoins is more than $60 million. “Fraudsters are not beyond the reach of the SEC just because they use bitcoins or another virtual currency to mislead investors and violate the federal securities laws,” Andrew M. Calamari, director of the SEC’s New York Regional Office, said in a statement. “Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed.”
According to the charges, Shavers promised investors up to 7 percent weekly interest based on BTCST's bitcoin market arbitrage activity, which was said to include selling to individuals who wanted to buy bitcoins "off the radar" quickly or in large quantities. In actuality however, BTCST used bitcoins from new investors in a Ponzi scheme to make purported interest payments and cover investor withdrawals on outstanding BTCST investments, the SEC alleged. Shavers also stands accused of stealing investors’ bitcoins and exchanging them for U.S. dollars to pay his personal expenses.