From the U.S. Attorney’s Office in Manhattan comes breaking and possibly groundbreaking news that hits a little closer to home: 32-year-old Trendon Shavers, a McKinney man accused of operating a Bitcoin-related Ponzi scheme, was arrested today on securities fraud and wire fraud. He was taken into custody at his McKinney home, and is due in federal court in Sherman later today.
The feds have been after Shavers — otherwise known as “pirateat40,” suggesting he’s a Jimmy Buffet fan? — for quite a while. In July 2013 and again in September of this year the U.S. Securities and Exchange Commission has filed civil complaints against him alleging that his so-called Bitcoin Savings and Trust was nothing but a front selling investments in the virtual currency intended to bilk investors out of millions. According to the feds’ release today, Shavers raised “at least 764,000 Bitcoin in BCS&T investments, which amounted to more than $4.5 million based on the average price of Bitcoin during the period of the scheme.”
Today’s arrest is considered something of a landmark: Prosecutors say this is a “first of its kind” securities fraud case.
Bitcoin, of course, isn’t tangible money you carry in your wallet, but virtual currency that exists solely on the Internet. And according to the feds, Shavers would go into the Bitcoin Forum and find folks willing to lend him their Bitcoin in exchange for 7 percent interest weekly with the promise they could withdraw their investment in Bitcoin Savings and Trust whenever they wanted. And for a while, from September 2011 through the following September, it worked: “At the peak of the scheme,” the U.S. Attorney’s Office says, “Shavers raised and had in his possession about seven percent of all the Bitcoin that were then in public circulation.”
But in the indictment unsealed today, prosecutors say he was doing nothing more than running an old-fashioned Ponzi scheme with investors’ Bitcoin, and using the rest for day-trading on a Bitcoin currency exchange that converts the virtual currency to real dollar bills. About half of his 100 investors are said to have lost everything, according to the U.S. Attorney and the FBI.
“As alleged, Trendon Shavers managed to combine financial and cyber fraud into a Bitcoin Ponzi scheme that offered absurdly high interest payments, and ultimately cheated his investors out of their Bitcoin investments,” says U.S. Attorney Preet Bharara in a prepared statement. “This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency.”
The securities fraud count comes with a max sentence of 20 years behind bars and a $5 million fine; the wire fraud count comes with the same possible amount of time in prison and a max fine of $250,000. But it will be up to the judge to sentence Shavers if he’s found guilty.
“Shavers used a new currency, but the same old reprehensible tricks,” says FBI Assistant Director-in-Charge George Venizelo. “He claimed to offer a Bitcoin market-arbitrage strategy. In reality, it was nothing more than an insidious scheme motivated by greed. Today, Shavers’ jig is up.”