Trendon Shavers, a 32-year old owner of the Bitcoin Savings and Trust company, was arrested in New York on Thursday. Shavers, also known as “Bitcoin’s Bernie” among detectives, was charged with securities and wire frauds that could send him to prison for maximum 20 years. Shavers could also be fined $5 million.
Shavers has allegedly raised $4.5 million by offering high interest rates for investors on various online forums by the ‘Pirate’ and ‘pirateat40’ nicknames. The authorities state it is the first Ponzi scheme with the use of bitcoin.
Shavers offered investors a 7% weekly interest rate, what amounts to 3,641% rate of return per year. He told investors that he was involved in bitcoin arbitrage activity and acted as a middleman for those who wished to purchase large quantities of cryptocurrency.
The US Attorney claims that 48 of the 100 investors lost some or all of their money.
Shavers is suspected of spending around 146,000 bitcoins of more than 764,000 bitcoins he received from September 2011 to September 2012. He was accused of using the money for spa treatments, casino, a $1,000 dinner at Gallagher’s Steakhouse in Las Vegas and to purchase an expensive car. At the time of his initial SEC charges the bitcoins were valued at $ 64 million.
U.S. Attorney Preet Bharara said: “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.
“This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency,” he added.
The case follows an order by a federal judge in Texas on September 18 that Shavers give up $40.7 million of illegal profit in a related U.S. Securities and Exchange Commission lawsuit.
At the previous SEC case in North Texas Shavers’s attorney claimed bitcoin was not subject to US securities laws that prohibit Ponzi schemes. However, the judge stated that the scam had violated the laws, which are created to protect investors from fraud.
Earlier this year, some officials in Texas issued a warning related to digital currencies. Joseph Rotunda, director of enforcement at the Texas State Securities Board, said that bitcoin could be used for illegal activities due to the lack of regulation.
At current bitcoin prices, 700,000 bitcoins Shavers scammed from investors would be valued at $243 million.
Shavers is expected to appear in federal court in Manhattan on November 14 after his case is transferred.
To read yesterday’s first instalment of CoinSpeaker’s 2-Part series on cryptocurrency fraud written by Quark founder Kolin Evans, go here.