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Judge Awards $40.7 Million in SEC Case Over Bitcoin Ponzi Scheme

Judge Awards $40.7 Million in SEC Case Over Bitcoin Ponzi Scheme

By Reuters | Updated: 20 September 2014 10:37 IST

A US federal judge in Texas ordered Bitcoin Savings and Trust and its owner to pay a combined $40.7 million after the Securities and Exchange Commission established that the company, which sold investments using the virtual currency, was a Ponzi scheme.

In a decision dated Thursday, US Magistrate Judge Amos Mazzant said Trendon Shavers "knowingly and intentionally" operated his company "as a sham and a Ponzi scheme," misleading investors about the use of their Bitcoin, how he would generate promised returns and the safety of their investments.

Shavers, of McKinney, Texas, did not immediately respond on Friday to a request for comment. His ability to pay the judgement is unclear.

Shavers' lawyer withdrew from the civil case this week, court records show.

The SEC said Shavers used the online moniker "pirateat40" to raise more than 732,000 Bitcoin from February 2011 to August 2012, promising investors up to 7 percent in weekly interest to be paid based on his ability to trade the currency.

(Also See: Bitcoin Gets Boost as US Watchdog Approves First Swap)

But according to the decision, Shavers used new Bitcoin to repay earlier investors, diverted some to personal accounts at the now-bankrupt Mt. Gox exchange and elsewhere, and spent some investor funds on rent, food, shopping and casino visits.

"The collective loss to BTCST investors who suffered net losses (there were also net winners) was 265,678 Bitcoins, or more than $149 million at current exchange rates," wrote Mazzant, who sits in Sherman, Texas.

Mazzant held Shavers and his company liable to give up $38.6 million of illegal profits plus $1.8 million in interest. Each defendant was also fined $150,000.

The SEC announced the case on July 23, 2013, the same day it warned investors to be on alert for potential scams involving Bitcoin and other "cutting-edge" investments.

©Thomson Reuters 2014

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