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SEC charges Trendon T. Shavers in Bitcoin Ponzi scheme

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Staff writer ▼ | July 24, 2013
The Securities and Exchange Commission (SEC) charged a Texas man and his company with defrauding investors in a Ponzi scheme involving Bitcoin, a virtual currency.
Bitcoin
BitcoinThe Securities and Exchange Commission (SEC) charged a Texas man and his company with defrauding investors in a Ponzi scheme involving Bitcoin, a virtual currency.


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."

Mr. 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.

Mr. 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.

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.

Mr. 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 0." Contrary to the representations made to investors, BTCST was not in the business of buying and selling Bitcoin at all.

The SEC alleges that Mr. Shavers paid 507,148 Bitcoin in investor withdrawals and purported interest payments. He transferred at least 150,649 Bitcoin to his personal account at an online Bitcoin currency exchange. He suffered a net loss from his day trading, but realized net proceeds of $164,758 from his sales of 86,202 Bitcoin.

Mr. Shavers transferred $147,102 from his personal account at the online Bitcoin currency exchange to accounts he controlled at an online payment processor as well as his personal checking account. He used this money to pay his rent, utilities, and car-related expenses as well as for food and retail purchases and gambling.


 

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