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Tag: Trendon T. Shavers

  • URGENT >> BULLETIN >> MOVING: First U.S. Criminal Prosecution Of Bitcoin-Themed Scheme; Trendon Shavers Arrested

    breakingnews72In the first U.S. criminal prosecution involving a Bitcoin-themed scheme, Trendon Shavers has been arrested and charged with securities fraud and wire fraud.

    Shavers, 32, of McKinney, Texas, was charged civilly by the SEC in July 2013. He is known as “pirateat40,”  and allegedly pushed his Bitcoin Savings and Trust Ponzi scheme from a forum.

    FBI agents arrested him today at his Texas residence.

    “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,” said U.S. Attorney Preet Bharara of the Southern District of New York.  “This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency.”

    A top FBI official threw down the gauntlet.

    “Shavers used a new currency, but the same old reprehensible tricks,” said FBI Assistant Director-in-Charge George Venizelos. “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. He finds himself under arrest and charged in Manhattan federal court.”

    Some HYIP schemes appear now to have moved away from payment processors such as the now-shuttered Liberty Reserve and are moving toward Bitcoin.

    From a statement by Bharara’s office, which previously prosecuted Liberty Reserve, calling it a $6 billion money-laundering operation that enabled HYIPs and others forms of fraud (italics added):

    From at least September 2011 up through and including September 2012, SHAVERS operated a Ponzi scheme. Specifically, SHAVERS solicited investments in BCS&T on the “Bitcoin Forum” – a public, Internet-based forum where, among other things, Bitcoin investment opportunities were posted. SHAVERS’s offer to investors was straightforward: investors who lent Bitcoin to BCS&T would be paid up to seven percent interest weekly – an annualized interest rate of 3,641% per year – and investors could withdraw their investments in BCS&T at any time. SHAVERS claimed that the Bitcoin invested by BCS&T investors would be used to support a Bitcoin market-arbitrage strategy, which included (i) lending Bitcoin to others for a fixed period of time; (ii) trading Bitcoin via online exchanges; and (iii) selling Bitcoin locally via private, off-markets transactions – i.e., “over-the-counter transactions.” SHAVERS also personally guaranteed to cover any losses in the event of a market change. In truth, SHAVERS largely failed to execute the claimed market arbitrage strategy, failed to honor all of his investors’ redemption requests as well as his personal guarantee, and failed to deliver the agreed upon rates of interest.

    In the end, BCS&T was a Ponzi scheme in which SHAVERS used Bitcoin from new investors to make purported interest payments to existing investors and to cover investors’ requests to withdraw Bitcoin from existing BCS&T accounts. In addition, SHAVERS diverted investors’ Bitcoin for day trading in his own account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay certain of his personal expenses. At the peak of the scheme, SHAVERS raised, and had in his possession, about seven percent of all the Bitcoin that were then in public circulation. In the end, at least 48 of approximately 100 investors lost all or part of their investment in BCS&T.

    Some Bitcoin enthusiasts have fretted that dark forces and criminal organizations are seeking to use Bitcoin in the same way they used Liberty Reserve. Criminal activities could undermine confidence in Bitcoin and affect its perception in the marketplace.

    In late August, some affiliates of the collapsed $850 million Zeek Rewards Ponzi scheme began pushing a Bitcoin-themed “program” known as BitClub Network, a purported “mining venture” with an investment arm attached that purportedly supplies a payout for 1,000 days.

    Prospects were encouraged to buy in with sums ranging from $500 to $3,500.

    Zeek used traditional forms of payment.

     

  • RECOMMENDED READING: Jordan Maglich In Forbes On Green-Lighting Of SEC Lawsuit In Alleged Ponzi Scheme Involving Bitcoin — And Why Zeekers Should Pay Attention

    recommendedreading1A federal judge in Texas has ruled that investments in the alleged Bitcoin Savings and Trust HYIP Ponzi scheme met all three prongs of the Howey Test and constituted an “investment contract” under federal securities laws.

    The ruling by U.S. Magistrate Judge Amos L. Mazzant of the Eastern District of Texas means that a lawsuit filed last month by the SEC against Trendon T. Shavers of McKinney will proceed. Shavers challenged the jurisdiction of the court, asserting that BTCST investments were not securities because Bitcoin is not money and is not part of anything regulated by the United States. He further contended that his transactions were were all Bitcoin transactions and that no money ever exchanged hands.

    For its part, the SEC argued that the BTCST offerings were both investment contracts and notes, and, thus, securities. Among other things, the SEC alleged that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin ‘off the radar’ in quick fashion or large quantities.  In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.”

    Read Maglich’s dissection of the ruling and the ramifications at Forbes.

  • BULLETIN: SEC: Now, A Bitcoin Ponzi Scheme Operated By Trendon T. Shavers — AKA ‘Pirate’ And ‘pirateat40’

    breakingnews72BULLETIN: The SEC has gone to federal court in the Eastern District of Texas, charging Trendon T. Shavers of McKinney in an alleged Bitcoin Ponzi scheme that gathered more than $4.5 million before collapsing in August 2012.

    Bitcoins are a digital currency that has “no single administrator, or central authority or repository,” the SEC said.

    Investors with at least 50 bitcoins were told that they’d receive “up to 1% interest daily,” the SEC charged, alleging that Shavers used the moniker “pirateat40” at an online forum to pitch the scheme.

    The “program” operated through an unincorporated entity known as BTCST, formerly known as First Pirate Savings & Trust, the SEC said.

    “Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims,” said Lori J. Schock, director of the SEC’s Office of Investor Education and Advocacy.  “Investors should understand that regardless of the type of investment, a promise of high returns with little or no risk is a classic warning sign of fraud.”

    Shavers is 30, the SEC said. The agency did not reveal when its investigation began or how it determined the online identities of Shavers.

    From a statement today by the SEC (italics added):

    The SEC alleges that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin “off the radar” in quick fashion or large quantities.  In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.  Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.

    And from an Investor Alert issued today by the SEC (italics added):

    Virtual currencies, such as Bitcoin, have recently become popular and are intended to serve as a type of money. They may be traded on online exchanges for conventional currencies, including the U.S. dollar, or used to purchase goods or services, usually online.

    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 in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions. The fraud may also involve an unregistered offering or trading platform.

    These schemes often promise high returns for getting in on the ground floor of a growing Internet phenomenon. Fraudsters may also be attracted to using virtual currencies to perpetrate their frauds because transactions in virtual currencies supposedly have greater privacy benefits and less regulatory oversight than transactions in conventional currencies. Any investment in securities in the United States remains subject to the jurisdiction of the SEC regardless of whether the investment is made in U.S. dollars or a virtual currency. In particular, individuals selling investments are typically subject to federal or state licensing requirements.

    Prior to the collapse of the scheme, Shavers denied to forum questioners he was operating a Ponzi. Along the way, however, he slashed the purported payout from 7 percent a week to 3.9 percent a week and changed the rules about who could invest, the SEC said.

    As the scheme was collapsing, the SEC charged, “Shavers made preferential redemptions to friends and longtime BTCST investors.”

    The scheme began “at least” by September 2011, the SEC said.