Texan Charged in first Ponzi case regarding bitcoin securities fraud

Texan Charged in first Ponzi case regarding bitcoin securities fraud

A Bitcoin (virtual currency) paper wallet with QR codes and coins are seen in an illustration picture taken at La Maison du Bitcoin in Paris

On Thursday. a Texas man who operated Bitcoin Savings and Trust was charged with bilking his investors. According to prosecutors, this will be the first federal criminal case for securities fraud that has arisen from a Ponzi scheme related to Bitcoins. Trendon Shavers, 32, from McKinney, Texas, was charged with allegedly misappropriating as much as 146,000 bitcoins out of the 764,000 bitcoins he raised from September 2011 to September 2012 which were then worth over $4.5 million. He did so by promising his investors interest rates which were absurdly high. Bitcoins are a form of virtual currency that are traded over the internet without backing from any government or centralized bank.

This criminal case is not the first rodeo for Mr. Shavers. On September 18, a federal judge ordered him to give up a whopping $40.7 million which was comprised of illegal profits, fines and interest related to a U.S. Securities and Exchange Commission civil suit. Known online as ‘pirateat40’, Shavers gained control of as much as 7% of the bitcoin market by falsely promising his investors that they would  earn 7% weekly interest on tier investments, or 3.641% annually, and that they would be able to withdraw their money at any time.

Instead of making good on his promises, Shavers allegedly used the new bitcoin to repay older investors and to add to his account at the Mt. Gox exchange which is now bankrupt. He used the ill-gotten gains to fund a number of expenses including a BMW M5 sedan, casino visits, spa treatments, and a dinner at Gallagher’s Steak House in Las Vegas which carried a $1,000 price tag.

According to prosecutors, around half of the investors in Bitcoin Savings and Trust, which Shavers actually ran by himself, lost either some or all of their investments. Shavers managed to combine financial and cyber fraud into a single bitcoin Ponzi scheme and cheated his investors. This is the first case of its kind and should serve as a warning to other who might try to make themselves a quick buck with any type of unsecured currency. Shavers was charged with both wire fraud and securities fraud and could face up to 20 years in prison for each count if convicted. He was arrested at his home on Thursday morning and made an appearance before a U.S. Magistrate Judge in the town of Sherman, Texas, near the Oklahoma border. He is scheduled to appear in federal court on November 14th in Manhattan once his case has been transferred.

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