SEC: Bitcoin banker's $4.5 million investment fund was a giant Ponzi scheme

The Securities and Exchange Commission (SEC) said Tuesday that a Texas man who ran an online investment fund that traded in the virtual currency Bitcoin was actually operating a giant Ponzi scheme that grew to over $4.5 million in value before collapsing.

In its advisory, the SEC unmasked Trendon T. Shavers as the mysterious online operator behind Bitcoin Savings & Trust (BST), which promised a 7 percent weekly return on investment but folded up last August after growing to an unbelievable size, holding as many as 700,000 Bitcoins.

Today, 700,000 Bitcoins would be worth about $60 million, but just last year that volume of the volatile virtual currency was trading for about $4.5 million. For BST creator "pirateat40," this was as far as he got.

"Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws," Andrew M. Calamari, Director of the SEC’s New York Regional Office, said in an advisory. "Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed."

The cryptographic Bitcoin exchanges that operate on anonymous, peer-to-peer networks are unregulated, untaxed and prone to attract criminality thanks to the currency's distributed structure. That's led to wild variability in the value of individual Bitcoins, causing losses for many while a few early adopters have exponentially enriched themselves.

The virtual currency's rise has also seen numerous scams accompany it due to the inability to enforce any sort of rules on a system built to resist regulation, with BST now officially atop the heap as the largest so far.

"Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims," Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy, said in an advisory. "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."

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["Stock photo: Stacks of Bitcoins," via Shutterstock.]