The US Securities and Exchange Commission (SEC) has charged a Texas man and his company with defrauding investors in a Ponzi scheme involving Bitcoin, a virtual currency traded on online exchanges for conventional currencies like the US dollar or used to purchase goods or services online.
The SEC alleges that Trendon Shavers, who is the founder and operator of Bitcoin Savings and Trust (BTCST), offered and sold Bitcoin-denominated investments through the Internet using the monikers "Pirate" and "pirateat40." Shavers raised at least 700,000 Bitcoin in BTCST investments, which amounted to more than US$4.5 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 US$60 million.
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The SEC alleges that Shavers promised investors up to 7% weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin "off the radar" in quick fashion or large quantities.
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. Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.
The SEC issued an investor alert today warning investors about the dangers of potential investment scams involving virtual currencies promoted through the Internet.
According to the SEC’s complaint filed in US District Court for the Eastern District of Texas, Shavers sold BTCST investments over the Internet to investors in such states as Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina, and Pennsylvania.
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By GlobalData"Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims," said Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. "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."
