The scam was run in 2011 and 2012. If it were in operation today, the ill-gotten gains would be worth $60 million, the Securities and Exchange Commission said in a statement.
As unregulated currency, the value of Bitcoins fluctuates wildly. For example, Bitcoins lost 70 percent of their value in two days in April, with the price falling from $266 per Bitcoin to $77.56, CNN reported.
The Web site Bitcoin, which tracks the value of the virtual currency, has the current price of one Bitcoin at $94.99.
Another Web site, Lifehacker, said in May 2011 the price of a Bitcoin was $7.50.
The SEC says that while operating the scam, Trendon Shavers, the founder of Bitcoin Savings and Trust, raised at least 700,000 Bitcoin for investments.
However, the investment was no more than a Ponzi scheme in which Shavers raised Bitcoin on false promises of investments that he never made. Instead, he used Bitcoin from new investors to cover his tracks and for personal expenses, the SEC said.
"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," said Andrew Calamari, director of the SEC's New York regional office.
"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," Calamari said.
The SEC alleges Shavers promised 7 percent weekly interest from his arbitrage transactions. He attracted investors with claims that "the risk is almost 0," and "I have yet to come close to taking a loss on any deal."
However, "contrary to the representations made to investors, BTCST was not in the business of buying and selling Bitcoin at all," the SEC said.
The SEC filed a complaint against Shavers in the U.S. District Court for the Eastern District of Texas. His business included duped investors in Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina, and Pennsylvania, the SEC said.