A Ponzi Scheme in Virtual & Real Money

SHERMAN, Texas (CN) – A Texas man ran a $5 million Ponzi scheme in virtual currency called bitcoins, the SEC claims in court.
     The SEC sued Trendon T. Shavers, of McKinney, and his company Bitcoin Savings and Trust, in Federal Court.
     “This case involves fraudulent offers and sales of securities by Shavers and BTCST, a Bitcoin-denominated Ponzi scheme founded and operated by Shavers,” the lawsuit states.
     “Bitcoin (‘BTC’) is a virtual currency that may be traded on online exchanges for conventional currencies, including the U.S. dollar, or used to purchase goods and services online. BTC has no single administrator, or central authority or repository.
     “From at least September 2011 to September 2012 (‘relevant period,), Shavers, operating under the Internet name ‘pirateat40,’ offered and sold BTCST investments over the Internet, raising more than 700,000 BTC in principal investments from BTCST investors, or more than $4.5 million based on the daily average price of BTC when the BTCST investors purchased their BTCST investments. “
     “Shavers falsely promised investors up to 7 percent interest weekly based on BTCST’s purported BTC market arbitrage activity, including selling BTC to individuals who wished to buy BTC ‘off the radar,’ quickly, or in large quantities.
     “In reality, the BTCST offering was a sham and a Ponzi scheme whereby Shavers used new BTCST investors’ BTC to pay the promised returns on outstanding BTCST investments and misappropriated BTCST investors’ BTC for his personal use.”
     Shavers, 30, founded and ran BTCST, fka First Pirate Savings & Trust, “an unincorporated entity with no brick and mortar presence,” the SEC says in its complaint. It says Shavers’ scheme constituted sale of unregistered securities.
     He started out in November 2011 by posting a “Looking for Lenders” ad on the online Bitcoin Forum, offering 1 percent daily interest for “loans” of 50 bitcoins or more. The SEC then cites a dozen more of Shavers’ posts, in which he claimed that business was great and that the “risk is almost 0.”
     “On or about April 10, 2012, Shavers launched a website for BTCST that allowed investors to track their BTCST investments online and changed the name from First Pirate Savings & Trust to BTCTS,” the complaint states.
     “On or about May 21, 2012, in a post on the Bitcoin Forum, Shavers wrote that BTCST was not a Ponzi scheme. Later the same day, in response to the question by another Bitcoin Forum participant, ‘Would you be willing to disclose anything about your actual profit margins over the 7 percent weekly you pay for use of the funds?,’ Shavers wrote: ‘I net gross 10.65 percent per week and payout 5.98 percent on average and it really depends on how much I want to work.'”
     However, “In August 2012, as the scheme collapsed, Shavers made preferential redemptions to friends and longtime BTCST investors,” the SEC says.
     Under the heading “Misappropriation of Investor Funds,” the SEC says:
     “During the relevant period, Shavers obtained at least 700,467 BTC in principal investments from BTCST investors, or $4,592,806 when converted to U.S. dollars based on the daily average price of BTC when the BTCST investors purchased their BTCST investments.
     “During the relevant period, Shavers returned at least 507,148 BTC to BTCST investors as withdrawals or purported interest payments.
     “During the relevant period, Shavers transferred at least 150,649 BTC to his personal account at an online BTC currency exchange which, among other things, he then sold or used to day-trade (converting BTC to U.S. dollars and vice-versa). As a result of this activity, Shavers suffered a net loss from his day trading, but realized net proceeds of $164,758 from his net sales of 86,202 BTC.
     “During the relevant period, Shavers transferred $147,102 from his personal account at the online BTC currency exchange to accounts he controlled at an online payment processor and his personal checking account, which he then used for, among other things, his personal expenses, including rent, car-related expenses, utilities, retail purchases, casinos, and meals.”
     The SEC charged him with securities fraud.
     It seeks disgorgement of ill-gotten gains, an injunction and penalties – in real money.

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