Federal Prosecutors Charge Operator of Bitcoin Ponzi Scheme

On Nov. 6, the United States Attorney’s office in Manhattan charged Trendon Shavers with securities fraud in connection with his defunct Bitcoin Savings & Trust, an alleged Ponzi scheme targeting users of the popular virtual currency Bitcoin. Shavers was arrested at his home in Texas. Back in August, a federal judge rejected Shavers’ argument that Bitcoins were not “securities” for purposes of federal law.

United States v. Trendon Shavers

Bitcoin is an unregulated, decentralized peer-to-peer payment system. Bitcoins are generated through software “mining” and can be bought and sold using traditional currencies. Bitcoins are stored electronically through a unique address (or “wallet”) and transactions are recorded on a “blockchain,” a public ledger made available to all wallets.

According to an affidavit filed by Special Agent Eric Burns of the Federal Bureau of Investigation, Shavers raised more than 760,000 individual Bitcoins from investors—representing about $4.5 million in value—through online forums. Shavers promised to invest the Bitcoins through his “Bitcoin Savings & Trust,” and provide returns of up to 7% per week.

In reality, according to Burns, Shavers was running a simple Ponzi scheme. He never made any of the promised investments, and simply used new Bitcoin investments to pay off existing customers. Burns said Shavers also diverted thousands of Bitcoins for his personal use. Shavers even allegedly made—and lost—a 5,000 Bitcoin bet that he was not running a Ponzi scheme.

Altogether, the FBI’s Burns said at least 48 of the approximately 100 investors in Bitcoin Savings & Trust “lost all or part of their investment.” Shavers himself allegedly controlled upwards of 7% of all publicly circulating Bitcoins at the height of the scheme. Burns identified at least four victims in his affidavit. All of them told Burns they relied on false statements made by Shavers with respect to the nature of his operation.

The U.S. Securities and Exchange Commission previously filed its own civil lawsuit against Shavers in Texas. This past September, a federal judge imposed a $40 million fine on Shavers. The court also ordered Shavers to provide an audited accounting of Bitcoin Savings & Trust to the SEC. According to the Burns affidavit, Shavers has not yet complied with this demand.

Always Be Cautious

The Shavers case is the first federal criminal prosecution of an individual for securities fraud involving Bitcoin. It may not be the last. Bitcoin is a still-developing technology prone to all sorts of fantastic claims. The SEC has warned investors that Bitcoin-related investments are subject to its jurisdiction, and anyone selling such investments within the United States must still comply with applicable federal and state licensing requirements.

Whether you invest using Bitcoin or dollars, always be aware of potential red flags with any investment opportunity, such as promising a high rate of return with “no risk” or failing to provide specific details about investment strategies. If you have been the victim of a Ponzi scheme or other securities fraud or other unsuitable investment, contact Florida securities fraud attorney Gregory Tendrich, P.A., to speak with someone right away.