US Securities and Exchange Commission (SEC), in 2013, charged a man with defrauding investors in a bitcoin Ponzi scheme. According to the SEC, Trendon T. Shavers, founder and operator of Bitcoin Savings and Trust (BTCST) enticed investors with 7% return on investments, weekly, depending on the bitcoin market arbitrage activity. The federal case has finally concluded and Shavers will be serving 18 months in a federal corrections facility. Shavers was also required to forfeit $1.2m and pay $1.2m in restitution. When the 18 months is served, another three years of supervised release will be required.
The federal case against the man who went by ‘Pirate’ and ‘pirateat40’ on internet forums started in 2013 where he was picked up and charged with one count of securities fraud and one count of wire fraud. The charges carried a maximum of 40 years in prison. Shavers pleaded not guilty to fraud charges in March 2015 but reversed his decision later that year. The defendant’s legal defense team and US Attorney Preet Bharara were able to come to an agreement that would reduce time served in exchange for a guilty plea to the fraud charges. You can find the full plea deal here.
As a result of coming to an agreement with the US Attorney, the 40 year maximum sentence was reduced to a maximum of 41 months time served. And as of his sentencing, he will be outside of prison walls in 18 months.
According to CoinDesk,US Attorney Preet Bharara commented on the matter, saying:
“Applying a modern spin to an age-old fraud, Trendon Shavers used a bitcoin business to run a classic Ponzi scheme. Shavers raised money in the form of bitcoins by promising spectacular returns and personal guarantees, when all he was really doing was paying back old investors with new investors’ bitcoins.”
The Ponzi scheme had collected money from at least 100 investors, New York prosecutors report, but 48 of those have lost part or all of the funds Shavers collected. More that 146,000 bitcoins were collected while the scheme was operating – at the time, they were only worth $807,380, according to CoinDesk. (Online reports have different several numbers listed including a 764,000 bitcoin total. As of the press release, the equivalent to 146,000 BTC was closer to $100m.
Shavers admitted that he “royally messed up” and “I don’t think this is something I’m ever going to get over,” he tells a reporter from Reuters.
New York prosecutors write that, at the time, Shavers managed to control 7% of bitcoins in circulation. While he’ll be missing the BMW M5 and $1,000 steakhouse dinners he was buying with the Ponzi scheme money, his sentencing could be far worse than 1 ½ years in a federal prison.