Bitcoin Ponzi Scheme Operator to Pay Over $40 Million

By Patricia Uceda, Fall 2014 Graduate Research Assistant

coin2Last year student intern James Gallagher introduced you to bitcoins. Earlier this year the SEC made clear in an investor alert that potential purchasers of bitcoin investments should beware of potential fraud involving the digital currency.

On September 18, 2014, as a result of an SEC-instituted enforcement action, a U.S. District Court held an internet investment fraudster liable for instituting a Ponzi-like scheme which defrauded investors out of more than 700,000 bitcoins. Trendon T. Shavers created Bitcoins Savings and Trust (BTCST) and solicited investors online, promising up to 7% weekly returns. He allegedly kept large portions of these investments for himself and was paying purported returns from the bitcoins that new investors were investing, a classic Ponzi scheme. As a result of his actions, Shavers was ordered to pay more than $40 million in disgorgement, as well as a civil penalty of $150,000.

This case provides a strong reminder to investors: whether you are considering an investment using traditional currency or a digital currency, be aware of the red flags of fraud.