The Securities and Exchange Commission (SEC) on Tuesday charged Trendon T. Shavers in Texas with allegedly "defrauding investors in a Ponzi scheme involving Bitcoin" valued at more than $4.5 million at the operation's peak.
The SEC claims Shavers is the man behind Bitcoin Savings & Trust (BST), an online investment fund that traded in the volatile Bitcoin virtual currency.
The fund grew to hold as many as 700,000 Bitcoins. Today, that many Bitcoins would be worth around $60 million, though a year ago that volume traded for just $4.5 million.
"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," Andrew Calamari, Director of the SEC’s New York Regional Office, said in an advisory.
"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 that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin “off the radar” in quick fashion or large quantities. 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. Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses."
"Investors should understand that regardless of the type of investment, a promise of high returns with little or no risk is a classic warning sign of fraud," said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.
Bitcoin exchanges, which operate on peer-to-peer networks, are anonymous, unregulated and untaxed. Though the currency has become slightly more stable with greater public attention, the value of Bitcoins continues to vary wildly.
Earlier this month, the Winklevoss twins of Facebook fame filed paperwork for an initial public offering of an exchange-traded fund (ETF) tracking the price of Bitcoins.
Tyler and Cameron Winklevoss created the ETF -- which comes with an 18-page outline of "risk factors" -- after buying about 1 percent of all Bitcoins in existence in April, when they were trading at more than $237. Bitcoins are now trading at around $93.