Legal

US Regulator Charges Man Over Bitcoin Ponzi Scheme

Eliane Chavagnon Deputy Editor Americas 25 July 2013

US Regulator Charges Man Over Bitcoin Ponzi Scheme

A Texas man has been charged by the Securities and Exchange Commission for allegedly running a Bitcoin Ponzi scheme. By promising investors returns from a weekly interest rate of up to 7 per cent Trendon Shavers raised about 700,000 Bitcoins between 2011 and 2012. This sum was worth $4.5 million at the time and more than $65 million at current rates.

Bitcoin, a form of electronic, or virtual, money is independent of any central authority and can be transferred through a computer or smartphone without an intermediate financial institution. It is considered a peer-to-peer, electronic cash system, with extremely volatile exchange rates, causing increasing concern for regulators across the globe.

Keeping this in mind, Shavers advertised his “Bitcoin Savings and Trust” bank as profiting from a Bitcoin market arbitrage strategy – supposedly making money by buying and selling the currency to take advantage of the fluctuating market prices.

In reality, BTCST was a Ponzi scheme in which Shavers used Bitcoins from new investors to cover the interest payments to existing investors. The SEC has accused Shavers of advertising his services online under the handles ‘Pirate’ and ‘pirateat40’ and allegedly telling his clients that the “risk is almost zero”.

Shavers also transferred more than 150,000 Bitcoins to his personal account in order to conduct day trading and pay for his accommodation, car, food and general shopping.

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