A Texan man has been charged by the Securities and Exchange Commission (SEC) for running a Bitcoin Ponzi scheme.
The SEC filed the lawsuit against Trendon Shavers, who founded Bitcoin Savings and Trust (BTCST) and offered and sold investments in the virtual currency through the internet using the monikers ‘Pirate’ and ‘Pirateat40’.
The SEC alleges Shavers promised investors up to 7% weekly interest rate based payments on BTCST’s Bitcoin market arbitrage strategy, which is understood to include selling to individuals who wished to buy Bitcoin ‘off the radar’ in quick fashion or large quantities.
Shavers raised at least 700,000 Bitcoin in BTCST investments, which amounted to more than $4.5 million (£2.9 million) based on the average price of Bitcoin in 2011 and 2012 when the investments were offered and sold. Today the value of 700,000 Bitcoin exceeds $60 million.
The SEC said that in reality, BTCST was a ‘sham’ and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.
It also claims Shavers diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for US dollars to pay his personal expenses.
The SEC used the case as a platform to warn other investors about the dangers of potential investment scams involving virtual currencies promoted through the internet.
‘Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws,’ said Andrew Calamari, director of the SEC’s New York regional office.
‘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.’
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