Texas man raised over $292 million in online Bitcoin scam promising 7 percent weekly returns
Government officials have slammed the door on a Bitcoin ponzi scheme
that promised investors a return of 7 percent per week, but it is unclear if the guilty party has the ability to pay the combined $40.7 million fine.
Trendon Shavers intentionally operated a Bitcoin ponzi scheme
U.S. Magistrate Judge Amos Mazzant in Texas found that Trendon Shavers “knowingly and intentionally” operated his company “as a sham and a Ponzi scheme,” according to a Reuters
report. Mazzant’s Thursday decision concluded Shavers mislead investors about how their investment capital would be used, how he would generate the promised weekly returns and the related safety of the investment.
From February 2011 to August 2012 Shavers, marketing the investment online, raised more than 732,000 bitcoin, worth nearly $292 million, and promised the weekly bounty based in his ability to trade the currency. It is illegal under most regulatory jurisdictions for anyone regulated selling an investment to guarantee investment returns of any kind.
“The collective loss to BTCST investors who suffered net losses (there were also net winners) was 265,678 bitcoins, or more than $149 million at current exchange rates,” Mazzant wrote in his decision.
Shavers and his company were ordered to return $38.6 million of illegal profits plus $1.8 million in interest, and each defendant was fined $150,000.
Shaver’s classic Ponzi-scheme fashion
In classic Ponzi-scheme fashion, Shavers used investment capital
from new investors to pay existing investors. Typically in a Ponzi scheme if all investors request their money out at the same time, or if the government shuts down the operation, return of full capital is seldom available to all investors.
The SEC announced the case on July 23, 2013, the same day it warned investors to be on alert for potential scams involving bitcoin and other “cutting-edge” investments, the report noted. The SEC said, “In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.”
When they announced the case in July, the SEC said that Shavers transferred at least 150,649 Bitcoins owned by investors for day trading into his account via Bitcoin currency exchanges, and uses investor’s Bitcoins to pay for his personal accounts by exchanging the virtual currencies
to U.S. dollars. Andrew M. Calamari, director of SEC New York Regional Office said in July, “Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws. Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed.”
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