A man in Texas has been arrested for running a Bitcoin-related Ponzi scheme. The person named, Trendon Shavers was arrested on one count of securities fraud and one count of wire fraud. The person is going to face these charges which carry a maximum sentence of 20 years in prison, as well as criminal fines.
The outcome of the case that was filed by the Securities and Exchange Commission against Shavers in July 2013 is that a federal judge ordered Shavers to pay $40 million in fines as well. The authorities say that Bitcoin Savings and Trust, that was being run by this man was nothing more than an elaborate scam that Shavers used to take in millions of dollars in BTC.
According to the authorities in total, Shavers took in more than 700,000 BTC – which at one point constituted approximately seven percent of all Bitcoin then in public circulation. They claim that through payments of purported interest, Shavers returned approximately 500,000 BTC to investors.
However, they found that he transferred the remainder which approximately is 150,000 BTC then worth $1 million to his personal account. A lot of the money he transferred to his personal account was then used for a variety of personal expenses including rent and gambling. Also, at least 48 of approximately 100 investors lost part or all of their investment with Shavers.
First Conviction for Anyone Running a Bitcoin Ponzi Scheme
The convicted man also attempted his hand at Bitcoin arbitrage, but ultimately suffered losses. Though he contested the SEC’s charges against him, arguing that he was not subject to the federal securities laws because Bitcoin could not be classified as a “security,” his arguments could not hold ground in the court.
The District Court found that Bitcoin investments satisfied the test espoused by the Supreme Court in S.E.C. v. W.J. Howey & Co., 328 U.S. 293 (1946). However, Shavers is still not accepting that what he did was illegal and wrong when he says that if his business is illegal then anyone trading coins for cash and back to coins is doing something illegal.
Shavers admitted that he made windfall profits and achieved gross returns of nearly 11% per week. However, the scheme began to collapse and he declared default. Later on the authorities alleged that what he was running was a Bitcoin-related Ponzi scheme.
To contact the reporter of this story: Deepak Tiwari at firstname.lastname@example.org