A touch more than a year after the Securities and Exchange Commission (SEC) charged a Texas resident Trendon T. Shavers and his company Bitcoin Savings & Trust (BTCST) with cheating luring in investors into a Ponzi scheme involving Bitcoin, a Texas federal court judge Amos L. Mazzant mandated the company and it founder to pay disgorgement and penalties totaling to more than $40 million.
According to the evidence submitted by the SEC, the firm cheated investors in it by running a Ponzi scheme with the digital currency by promising to investors up to 7% weekly interest. Mr Shavers alleged that BTCST’s was conducting a sort of Bitcoin market arbitrage and was supposedly selling Bitcoins to individuals who wished to buy it under the radar quickly and in decent volume.
However nothing of the like ever happened – BTCST and its founder was using the Bitcoin deposits from new investors to pay the new ones. Mr. Shavers also day traded in his account on a Bitcoin currency exchange and sold digital currency pertaining to his investors to pay for his own personal expenses.
The disgorgement calculation is based on the average daily price of Bitcoin on August 26, 2012, which is the date when the scheme got exposed.
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Judge Mazzano wrote in the statement that “The uncontested summary judgment evidence establishes that Shavers knowingly and intentionally operated BTCST as a sham and a Ponzi scheme, repeatedly making misrepresentations to BTCST investors and potential investors concerning the use of their bitcoins; how he would generate the promised returns; and the safety of the investments.”
Mr Shavers and his company BTCST offered and sold Bitcoin-denominated investments online and raised close to 700,000 Bitcoin. Based on the average price of Bitcoin through the period during which the funds were collected the total amount is close to $4.5 million. The value of 700,000 Bitcoins collected by the perpetrator amounts to about $272 million.
At the time of the unveiling of the scheme, Director of the SEC’s New York Regional Office Andrew M. Calamari, stated that “Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed.”
Shavers sold BTCST investments over the Internet to investors in various states like Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina, and Pennsylvania.
According to the SEC charges, Shavers paid 507,148 Bitcoin in investor withdrawals and alleged interest payments. He used 150,649 Bitcoin for his personal needs. He sold 86,202 Bitcoin for $164,758. The rest of the funds he lost in his day trading activity. He used the proceeds to pay his rent, utility bills, retail purchases and gambling.