The Securities and Exchange Commission (SEC) alleged on Tuesday that Trendon T. Shavers created a Bitcoin Ponzi scheme that defrauded investors of $4.5 million.
They say that Shavers owned the Bitcoin Savings Trust (BST), an online investment fund trading in Bitcoin. At one time, the fund held 700,000 Bitcoins, which today are worth about $60 million – although, 12 months ago, the value was only $4.5 million.
Andrew Calamari, Director of the SEC's New York Regional Office, 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." Shavers told investors that they could expect a seven percent weekly interest based on a complicated formula related to market arbitrage activities.
The SEC says that, in reality, the entire operation was a sham. It was actually a Ponzi scheme, using Bitcoin trading as the bait. They claim that Shavers diverted monies to his private account and converted Bitcoin to US Dollars, which he then took to pay his expenses.
Lori Schock, Director of the SEC's Office of Investor Education and Advocacy, stated the obvious when she said: "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." The appeal of Bitcoin exchanges is that they are anonymous, unregulated and untaxed. It is because of these special features that a "Bitcoin Ponzi" scheme was possible
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