The Securities and Exchange Commission (SEC) charged an individual in Texas for allegedly operating a Bitcoin Ponzi scheme. The lawsuit was filed against Trendon T. Shavers, founder and operator of Bitcoin Savings and Trust (BTCST).
The SEC alleged that Shavers offered and sold Bitcoin-denominated investments using the monikers “pirate’ and “pirateat40” on the internet, and raised approximately 700,000 Bitcoins worth $4.5 million in BTCST investments based on the average price of the virtual currency in 2011 and 2012. The current value of the 700,000 Bitcoins is more than $60 million.
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According to the SEC, Shavers lured investors by promising them to earn a 7% interest per week on their investments based on the BTCST’s Bitcoin market arbitrage activity, which include selling the virtual currency to people interested in purchasing Bitcoin “off the radar” in large quantities and faster.
Bitcoin fraudsters not beyond the long arm of the law
The SEC said, “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.” The commission also said that Shavers transferred at least 150,649 Bitcoins owned by investors for day trading into his account via Bitcoin currency exchanges, and uses investor’s Bitcoins to pay for his personal accounts by exchanging the virtual currencies to U.S. dollars.
Andrew M. Calamari, director of SEC New York Regional Office said, “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. 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.”
SEC issues a warning against Bitcoin scams
The SEC issued a warning to investors regarding the dangers of potential investment scams involving virtual currencies offered through the internet today.
The complaint filed by the SEC against Shavers stipulated that he sold BTCST investments through the internet to investors in different states including Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina, and Pennsylvania. The SEC emphasized that BTCST is not engaged in the business of buying and selling Bitcoin.
“Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims. Investors should understand that regardless of the type of investment, a promise of high returns with little or no risk is a classic warning sign of fraud,” said Lori J. Schock, director, Office of Investor Education and Advocacy at SEC.
Last May, federal authorities shut down Mt. Gox, the largest Bitcoin exchange worldwide for operating a money transfer business without a license.