Skip to footer

Bitcoin Ponzi scheme: SEC charges Texas man

Bitcoin Ponzi scheme raised at least $4.5 million from investors in the digital currency. But SEC says Bitcoin operator used some proceeds for personal expenses, then covered withdrawals with money from new investors.

|
Rick Bowmer/AP/File
Mike Caldwell, a 35-year-old software engineer, holds a 25 Bitcoin token minted at his shop in Sandy, Utah – a physical version of the popular digital currency. The SEC charges that a Texas ran a Ponzi scheme using Bitcoins.
  • By Sarah N. Lynch Reuters

| WASHINGTON

A Texas man ran a Ponzi scheme through the virtual online money system called Bitcoin, pocketing some of his investors' proceeds for his personal expenses and gambling, U.S. securities regulators charged on Tuesday, warning that the rise of such digital currencies could lead to more frauds.

The Securities and Exchange Commission said in a statement that Trendon Shavers, 30, of McKinney,Texas, and his company Bitcoin Savings & Trust used money from new investors to cover withdrawals by other investors and his own expenses.

He raised at least 700,000 Bitcoin, or $4.5 million, from investors in multiple states, the SEC said.

Attempts to reach Shavers or find a representative were unsuccessful. The agency is moving to freeze Shavers' assets and seeking other relief, including financial penalties.

Bitcoin, which is not managed by any one company or government, is a relatively new phenomenon that exists through an open-source software program. Users can buy Bitcoin through exchanges that convert real money into the virtual currency.

In its statement about the Shavers case, the SEC on Tuesday also said it issued an alert warning investors to be on the lookout for scams involving virtual currencies.

"We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes," the SEC said.

Less regulatory oversight and supposed greater privacy of virtual currencies compared with conventional ones could make virtual currencies more attractive to scammers, the agency said.

The U.S. government in May seized two accounts linked to a large Bitcoin operator, Tokyo-based exchange Mt. Gox.

Also in May, U.S. prosecutors filed an indictment against the operators of digital currency exchange Liberty Reserve, accusing the Costa Rica-based company of helping criminals around the world to launder more than $6 billion in illicit funds.

Bitcoin grabbed headlines in early July when Cameron and Tyler Winklevoss, the twins famous for having alleged that Mark Zuckerberg stole the idea that became Facebook Inc, applied to the SEC to launch a Bitcoin-tracking exchange-traded product (ETP) called the Winklevoss Bitcoin Trust.

It is unclear whether the SEC's concerns about Bitcoin laid out in its investor alert on Tuesday could pose a problem for that offering.

The application is currently being reviewed by the SEC's Corporation Finance Division. That division reviews applications to ensure they meet SEC filing guidelines but cannot reject one based on the offering's merits.

However, once an exchange applies to list the ETP, another division in the SEC that oversees trading and markets can explore whether a Bitcoin product is viable or potentially vulnerable to manipulation.

The price of Bitcoin rose slightly to $96.50 during early Tuesday afternoon trading, after ending Monday at midnight at $93.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Bitcoin Ponzi scheme: SEC charges Texas man
Read this article in
https://www.csmonitor.com/Business/Latest-News-Wires/2013/0724/Bitcoin-Ponzi-scheme-SEC-charges-Texas-man
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe