Today, the SEC charged Trendon Shavers of McKinney, Texas, known to many in the bitcoin community as “pirateat40” with defrauding investors in a Ponzi scheme known as the Bitcoin Savings and Trust. The SEC also issued an investor alert titled, “Ponzi Schemes Using Virtual Currencies.”
The Bitcoin Savings and Trust, an infamous fraud in the bitcoin community, was suspected of being a Ponzi scheme long before its final closure. By limiting initial investments, promising 3,300% annualized interest and establishing trust over a long period of time on the bitcointalk forums, Shavers was able to con more than 700,000 BTC from his victims – nearly $70 million at today’s BTC/USD exchange rate.
At the time, he used a vague description of his business model, claiming to capitalize on arbitrage opportunities across exchanges, but never revealing his full plan as not to hurt an alleged competitive advantage. Shavers was able to build up a fund of that size by limiting investors at first. This prevented anyone from having an account large enough to collapse the scheme with a withdrawal, while also making investors hesitant to remove funds on fears of not being able to get back into what seemed like a massive growth opportunity.
The SEC charged Shavers with unlawfully selling unregistered securities, as well as intentionally misleading and defrauding investors. Their alert provides an overview of Ponzi schemes – a fund that pays earlier investors with new investors’ money, often promising returns far exceeding alternative opportunities. The SEC document also explains that virtual currencies may be seen as especially attractive to those looking to conduct fraud as a result of the perceived ability to remain anonymous. Importantly, the filing also notes, “Any investment in securities in the United states remains subject to the jurisdiction of the SEC regardless of whether the investment is made in U.S. dollars or a virtual currency.”
The implications of this are significant for the virtual currency world. Though the SEC’s first unsolicited step into the space, it is likely not the last, with unregistered (albeit far-more transparent) bitcoin-denominated securities already widely traded on sites like BitFunder and BTC Trading Corp.
Further information is available from the SEC:
- SEC Press Release: SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme
- SEC Investor Alert: Ponzi schemes Using virtual Currencies
- Official Filing: Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust