A Texas has man has been charged by the Securities and Exchange Comission 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 “at least” 700,000 Bitcoins between 2011 and 2012. This sum was worth $4.5 million at the time and more than $65m at today’s rates.
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 fluctuating market prices.
The SEC have accused Shavers of advertising his services online under the handles ‘Pirate’ and ‘pirateat40’. Using the classic Ponzi strategy of taking money from new investors to cover the interest payments to existing investors, Shavers allegedly told 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 (where he lost money) and pay for his accommodation, car, food and general shopping.
Issuing a warning to investors to approach schemes involving virtual currencies with as much scepticism as they would for more traditional investments Andrew Calamari, the Director of SEC’s New York Regional Office said in a statement: “Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws.”
“Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed.”
The case is one of the first criminal prosecutions related to Bitcoin, and the debate is still continuing as to whether the virtual currency, launched in 2009, is in need of official regulation.
In the US the Commodity Futures Trading Commission (CFTC) announced they would be discussing whether the currency was covered by their rules back in May, but have yet to make any formal announcements.