Man Gets 18 Months for Bitcoin Ponzi Scheme

     MANHATTAN (CN) — Trendon Shavers is no Bernie Madoff, but his online Ponzi scheme — the first criminal charges for security fraud involving bitcoin — will send him to prison for 18 months, a federal judge ruled Thursday.
     Shavers also faces a $40.7 million fine from federal regulators for his defunct operation Bitcoin Savings & Trust, which he ran out of his home under the handle “pirateat40.”
     When the company opened, Shavers insists, he intended it to be a legitimate enterprise, and he met investors face-to-face and over the phone rather than take advantage of the digital currency’s promise of anonymity.
     In late 2011, Shavers posted a “Looking for Lenders” ad on the online Bitcoin Forum, promising 1 percent daily interest for “loans” of 50 bitcoins or more as the business started going south, prosecutors said.
     The government says the 33-year-old Texan raised more than 700,000 bitcoins from investors, whom he promised up to 7 percent interest every week before the scheme collapsed.
     The U.S. Securities and Exchange Commission estimated that 48 of approximately 100 investors lost more than 265,000 bitcoins valued at $149 million, but that Shavers made redemptions for friends and investors.
     Prosecutors say that he spent $220,000 of the proceeds on personal expenses.
     Shavers pleaded guilty to a securities fraud charge last year that carried a maximum penalty of 20 years in prison.
     Probation officers recommended a far lower term of a 33-month minimum for Shavers, who has struggled for the past two years working odd jobs as a cook to provide for a wife and two children.
     His defense attorney Sabrina Shroff said that Shavers’ devotion to his family reflects his character.
     “All in all, Mr. Shavers is a person of integrity in his personal life,” she said.
     At a sentencing hearing Thursday, U.S. District Judge Lewis Kaplan noted that the Texan’s virtual scheme was a “tiny fraction” of what Madoff reaped in the material world, and he made a significant effort to turn his life around after his scheme unraveled.
     “As a man, I do give you credit for that,” Kaplan said.
     At the hearing, Shavers told the court how the news of his fraud affected his family and social circle in Prosper, Texas, a suburb of Dallas.
     “Your Honor, I’ve royally messed up and had a really tough time when everything went down,” said Shavers, who must report to prison on Oct. 5.
     Besides losing friends, Shavers said, his 13-year-old stepchildren felt the ripples of the case while making a collage for a school art project when they saw newspaper coverage of his case.
     “That’s something I’m never going to be able to get over,” he said.
     Assistant U.S. Attorney Michael Ferrara said that most of the roughly 100 investors used online handles, and only “a few of them” have been identified.
     The prosecutor said the government will continue to look for victims for the roughly $1.2 million in forfeiture that the court ordered.

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