SEC charges Texas man with running ponzi scheme
Newscast Media WASHINGTON—The Securities and Exchange Commission today 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 U.S. dollar or used to purchase goods or services online.
The SEC alleges that Trendon T. 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 $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 $60 million.
The SEC alleges that Shavers promised investors up to 7 percent 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.
“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 M. 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.”
According to the SEC’s complaint filed in U.S. 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. Shavers posted general solicitations on a website dedicated to Bitcoin discussions, and he misled investors with such false assurances about his investment opportunity as “It’s growing, it’s growing!” and “I have yet to come close to taking a loss on any deal,” and “risk is almost zero.”