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Texas man pleads guilty to running $4.5 million Bitcoin Ponzi scam

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A Texas man accused of operating a Ponzi scheme involving bitcoins pleaded guilty on Monday in what prosecutors say was the first U.S. criminal securities fraud case related to the digital currency.

Trendon Shavers, who authorities said defrauded investors after raising more than $4.5 million worth of bitcoins while operating Bitcoin Savings and Trust, pleaded guilty in Manhattan federal court to one count of securities fraud.

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“I know what I did was wrong, and I’m very sorry,” Shavers said in court.

Under a plea deal, Shavers has agreed not to appeal any sentence at or below 41 months in prison. Sentencing before U.S. District Judge Lewis Kaplan is scheduled for Feb. 3.

Shavers, who went by “pirateat40” online, was arrested in November, two months after a federal judge in Texas ordered him to pay $40.7 million in a related U.S. Securities and Exchange Commission civil lawsuit.

Prosecutors said Shavers, who turned 33 on Monday, raised at least 764,000 bitcoins worth more than $4.5 million based on the average price of bitcoin during the period of the scheme from investors from September 2011 to September 2012. He promised interest rates of 7 percent per week or 3,641 percent a year.

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The indictment said Shavers solicited the investments on the website Bitcoin Forum, offering to pay interest to investors who loaned bitcoins to Bitcoin Savings and Trust while he pursued a market arbitrage strategy.

Michael Ferrara, a prosecutor, in court on Monday said Shavers had invested some of the bitcoins with Mt. Gox, the now-defunct Tokoyo-based bitcoin exchange.

But Ferrara said Shavers, who lived in McKinney, Texas, largely instead used new investors’ bitcoins to pay back prior investors.

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“In other words, he had the telltale signs of a Ponzi scheme,” Ferrara said.

In court papers, prosecutors had also accused Shavers of misappropriating bitcoins to buy a used BMW M5 sedan and a $1,000 steakhouse dinner in Las Vegas, and to go to spas and casinos.

At the peak of the scheme, Shavers controlled about 7 percent of bitcoins in public circulation, prosecutors said. In total, prosecutors said he misappropriated 146,000 bitcoins and caused 48 investors to suffer losses.

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The case is U.S. v. Shavers, U.S. District Court, Southern District of New York, No. 15-cr-00157.

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… then let us make a small request. Like you, we here at Raw Story believe in the power of progressive journalism — and we’re investing in investigative reporting as other publications give it the ax. Raw Story readers power David Cay Johnston’s DCReport, which we've expanded to keep watch in Washington. We’ve exposed billionaire tax evasion and uncovered White House efforts to poison our water. We’ve revealed financial scams that prey on veterans, and efforts to harm workers exploited by abusive bosses. We’ve launched a weekly podcast, “We’ve Got Issues,” focused on issues, not tweets. Unlike other news sites, we’ve decided to make our original content free. But we need your support to do what we do.

Raw Story is independent. You won’t find mainstream media bias here. We’re not part of a conglomerate, or a project of venture capital bros. From unflinching coverage of racism, to revealing efforts to erode our rights, Raw Story will continue to expose hypocrisy and harm. Unhinged from corporate overlords, we fight to ensure no one is forgotten.

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