Fraud & Security -

Bitcoin Ponzi scheme

The Securities and Exchange Commission is suing a Texas man for allegedly running a Ponzi scheme he promoted through a Bitcoin-denominated investment strategy and issued a warning to investors about falling for traps involving virtual currencies.

The SEC filed a civil lawsuit against Bitcoin Savings and Trust and its founder Trendon Shavers for allegedly marketing a “sham” Bitcoin market arbitrage strategy to investors in 2011 and 2012. By allegedly promising investors up to 7% weekly interest payments, he allegedly raised 700,000 Bitcoins, which at the time was valued at $4.5 million.

Using the moniker “Pirate” and “pirateat40”, the SEC claims that Mr Shavers advertised on online discussions dedicated to Bitcoins and attracted 66 investors from states as far apart as Connecticut and Hawaii.

He allegedly used Bitcoin payments from new investors to make the interest payments to existing investors. He also allegedly shifted investors’ Bitcoin holdings to his personal account that he used to day trade Bitcoins and pay his rent, meals and trips to a casino.

Mr Shavers could not be reached. The SEC said it was unaware of any attorney representing him.

The SEC simultaneously issued a warning to investors to be wary of schemes involving virtual currencies. Its warning comes as other regulators have tried to police the businesses engaged in Bitcoins.

This year, the US Department of Homeland Security seized the bank account of the largest Bitcoin exchange, saying its owner failed to register as a money service business.

US prosecutors filed criminal charges against the creators of “LR”, a virtual currency run by Liberty Reserve, which authorities allege was used as a money laundering scheme for narcotics traffickers, cyber criminals and child pornographers.

On Tuesday, Lori Schock, director of the SEC’s office of investor education and advocacy, said: “Investors should understand that regardless of the type of investment, a promise of high returns with little or no risk is a classic warning sign of fraud.”

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