Texas man charged in first-ever bitcoin Ponzi scheme
In the first federal securities case involving a Ponzi-scheme using the digital currency, a Texas man was charged Thursday in New York with defrauding investors of millions of dollars worth of bitcoin.
Trendon Shavers, 32, was arrested at his home in McKinney, Texas, on Thursday morning on charges of securities and wire fraud after promising investors 7% interest weekly — an annual rate of return of 3,641% — on their bitcoin at his Bitcoin Savings and Trust company, court papers show. Shavers allegedly raised at least 764,000 bitcoin, worth $4.5 million, from investors from September 2011 to September 2012.
Shavers “managed to combine financial and cyber fraud into a bitcoin Ponzi scheme that offered absurdly high interest payments, and ultimately cheated his investors out of their Bitcoin investments,” U.S. Attorney Preet Bharara said. “This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency.”
Of Shavers’ 100 investors in the company, also known as First Pirate Savings & Trust, 48 lost all or part of their bitcoin investments, prosecutors said.
Bitcoin is a digital, computer-generated currency that trades from person to person, without backing from any government or country.
“Shavers used a new currency, but the same old reprehensible tricks,” FBI Assistant Director in Charge George Venizelos said.
Shavers posted his offer on the “Bitcoin Forum,” a public, Internet-based bulletin board and discussion group. In his offer, he claimed he would use a market-arbitrage strategy, including lending bitcoin at a fixed time period and trading bitcoin on online exchanges, court papers say. He also guaranteed to personally cover any losses. Instead, prosecutors say, Shavers allegedly used bitcoin from new investors to make interest payments to other investors, court papers said.
Prosecutors say at the peak of his operation Shavers controlled 7% of the bitcoin in circulation.
A federal judge in September ordered Shavers to pay $40.7 million in illegal profits and interest stemming from a civil suit brought by the Securities and Exchange Commission.
Source: USATODAY – Texas man charged in first-ever bitcoin Ponzi scheme
