The biggest cryptocurrency scams in history (Part 4) — Bitcoin Savings and Trust
This one has the dubious honor of being the first ever criminal fraud case in the U.S. involving cryptocurrency — Trendon Shavers was sent to jail for sixteen month in addition to having to pay $1.23m in restitution. The judge on the case clearly stated that his whole operation was just a class Ponzi scheme and that he “defrauded innocent people” for personal gains.
What happened exactly?
Between September 2011 and September 2012, Shavers’ Bitcoin Savings & Trust (BTCST) allegedly raised 764,000 bitcoins, worth roughly $4.5 million at the time (and over half a billion USD at current Bitcoin exchange rates), from clients that trusted him to invest the funds for them. These investors were promised returns of 7% per week, or 3,641% per year, claiming to employ market arbitrage strategies.
Needless to say, it later turned out that Shavers used new investors’ money to pay back prior investors. Some funds were allegedly invested on MtGox, at one point the world’s largest bitcoin exchange. (MtGox collapsed in February, 2014.) Furthermore, the money was spent on such invaluable necessities like a BMW M5 and casino visits.
Basically, during the relevant period, either directly or indirectly, Shavers sold BTCST investments over the Internet to at least 66 investors, including investors residing in Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina, and Pennsylvania. A man, known by his handle “pirateat40” transferred a big part of the gathered Bitcoins to his day trading account. The SEC claims that Shavers paid 507,148 Bitcoins in investor withdrawals and purported interest payments. But he also transferred at least 150,649 Bitcoins to his personal account at an online Bitcoin currency exchange.
SEC: Securities and Exchange Commission:
The U.S. Securities and Exchange Commission is an independent federal government regulatory agency responsible for protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation
Shavers, who was charged with one count of securities fraud and one count of wire fraud, faced up to 40 years in prison. Originally, he pled not guilty to fraud charges in March 2015. This decision was reversed in September of that year as part of a plea deal — thanks to this, his possible sentence was lowered to a maximum of 41 months.
US Attorney for the Southern District of New York Preet Bharara stated that the case was an example of how new technology can be used to perpetrate activities that are already illegal under existing law.
“Applying a modern spin to an age-old fraud, Trendon Shavers used a bitcoin business to run a classic Ponzi scheme. Shavers raised money in the form of bitcoins by promising spectacular returns and personal guarantees, when all he was really doing was paying back old investors with new investors’ bitcoins.”
According to news agency Reuters, Shavers was apologetic in court, stating that he “royally messed up”.
“I don’t think this is something I’m ever going to get over,” he said, according to the report.
Shavers was also fined $40.7m in a related civil lawsuit in September of 2014. He was later arrested in November of that year. Prosecutors now project 48 of the scheme’s approximately 100 investors lost all or part of investments.