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Friday, May 17, 2024 | Back issues
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Texas Man Criminally Charged for Bitcoin Scam

(CN) - A massive Ponzi scheme tied to a collapsed Bitcoin-trading operation that cost investors $149 million led to the arrest Thursday of a Texas man.

Trendon Shavers, 31, of McKinney, Texas, already faces a more than $40.4 million judgment for his operation of Bitcoin Savings & Trust (BCS&T), a massive Ponzi scheme that he ran out of his home as "pirateat40."

Bitcoin is a digital currency, not issued or regulated by any government, that can be traded or used to purchase goods or services anonymously.

The civil complaint that the Securities and Exchange Commission brought against Shavers last year claimed that he had raised more than 700,000 bitcoins from investors, whom he promised up to 7 percent interest every week based on BCS&T's claimed market arbitrage activity.

The SEC claimed Shavers' fraudulent activities began in November 2011, when he posted a "Looking for Lenders" ad on the online Bitcoin Forum, offering 1 percent daily interest for "loans" of 50 bitcoins or more. The agency cited a dozen more of Shavers' posts in which he claimed that business was great, and that the "risk is almost 0."

When the scheme collapsed in August 2012, at least 48 of approximately 100 investors lost more than 265,000 bitcoins valued at $149 million. Shavers made preferential redemptions to friends and longtime investors, the SEC claimed.

Federal prosecutors in Manhattan announced that Shavers was arrested at his McKinney home Thursday morning and charged with securities fraud and wire fraud based on the SEC's allegations.

The criminal complaint says Shavers "had no market arbitrage strategy, but instead used new BCS&T investors' Bitcoin to pay back the promised interest returns to prior BCS&T investors and misappropriated BCS&T investors' Bitcoin for his own personal use."

U.S. Attorney Preet Bharara said in a press release: "As alleged, Trendon Shavers managed to combine financial and cyber fraud into a Bitcoin Ponzi scheme that offered absurdly high interest payments, and ultimately cheated his investors out of their Bitcoin investments. This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency."

Shavers faces up to 20 years in prison, and a potential fine of twice the amount lost by investors.

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