A 33-year-old Texan man pleaded guilty to running a Ponzi scheme involving bitcoins, making it the first ever U.S. criminal fraud case related to the cryptocurrency.
Texas native Trendon Shavers has admitted to operating a Ponzi scheme running $4.5 million worth of bitcoins, Reuters reports.
Shavers aka “pirateat40” while online, was arrested in November, a couple of months after being ordered to pay $40.7 million in a U.S. Securities and Exchange Commission civil lawsuit related to the Ponzi case.
The case is a milestone, with prosecutors noting that it is the first U.S. criminal securities fraud case related to Bitcoin.
“I know what I did was wrong, and I’m very sorry,” – Shavers said while being prosecuted in court.
In a plea deal, Shavers agreed not to appeal against any sentence at or below 41 months in prison.
Shavers started his company, Bitcoin Savings & Trust in 2011 and used it to offer promises of high rewards to investors over the Internet by collecting bitcoins.
The con? A return of one percent interest, every three days. In other words, a staggering seven percent per week.
Most of the bitcoins collected duly went back to paying initial and older investors, making it the classic Ponzi scheme.
Not one for subtlety, Shavers used the remaining bitcoins after the payout to splurge on a used BMW M5 sedan, a $1000 Las Vegas steakhouse dinner and plenty of outings to Las Vegas spas and casinos. At the very height of his scheme, prosecutors said Shavers controlled nearly 7 percent of the bitcoins in public circulation and had misappropriated about 146,000 bitcoins in total. The Ponzi scheme is confirmed to have caused 48 investors to incur losses.
Shavers accumulated over 750,000 bitcoins, worth over $4.5 million in comparing the average price of bitcoin between September 2011 to September 2012.
A prosecutor in the case, Michael Ferrara, revealed that Shavers had also invested some of the amassed bitcoins with the now-obsolete Tokyo-based bitcoin exchange, Mt. Gox. Most of the bitcoins, however, went straight back into the pool of returns to pay back and appease early investors.
In other words, he had the telltale signs of a Ponzi scheme, confirmed Ferrara.
Images from Shutterstock and Pixabay.
Last modified: May 21, 2020 11:01 AM UTC