SEC Alleges 'Bitcoin Savings & Trust' Is a Ponzi Scheme 176
New submitter craighansen writes "The U.S. Securities and Exchange Commission has filed a lawsuit against a man they allege ran a Ponzi scheme using Bitcoin. According to the complaint (PDF), during 2011-2012, Trendon Shavers, operating under the username pirateat40, collected investments of over 700,000 Bitcoins from at least 66 'investors' (a valuation of $4.5M) with the promise of as much as 7% weekly returns. These 'investors' received about 500,000 Bitcoins in returns, so on average, they're probably much better-off than investors in Madoff's scheme. Nevertheless, with the rising value of Bitcoins, the $4.5M investments would be worth $65M at recent pricing if they had actually been left in Bitcoins, which approximates the 1% per day returns that the scheme promised."
Re:Legal (Score:2, Insightful)
No, it means investing in them is slightly dumber than we all knew it was yesterday.
Re:interesting (Score:4, Insightful)
You think the SEC cares if it is a legitimate security?
The funny thing is that even if it is not a ponzi scheme, it is still an unregistered bank, which is illegal in and of itself.
You can't escape regulation just by doing business with bitcoin instead of dollars.
Ponzi schemes (or securities) aren't USD-only (Score:5, Insightful)
Why would you think it's not considered a legitimate security? A Ponzi scheme can be built on anything you like; if it's an investment, the SEC has jurisdiction.
The feds may not like BitCoins, but that's mainly due to their use for money-laundering, not because they have some sort of deep-seated fear that the USD will start feeling the heat of competition.
Re:Legal (Score:5, Insightful)
Actually, in this case it means quite the opposite; investing your bitcoins in something (a scam in particular) is worse than investing _in_ bitcoins.
If the investors had merely been sitting on their bitcoins they would have gotten the returns he promised (although in dollar value).
Re:Legal (Score:5, Insightful)
No, it means investing in them is slightly dumber than we all knew it was yesterday.
No, it means investing in bitcoin-denominated ponzi schemes is dumb, running ponzi schemes is illegal and keeping their saving in bitcoins would be good idea for people scammed by pirate40.
Comment removed (Score:5, Insightful)
Re:Legal (Score:5, Insightful)
This really has nothing to do with bitcoin itself, and is just someone trying to use them to scam people. Nothing new here.
Re:8% weekly - what kind of idiot believes that ?? (Score:4, Insightful)
Not really, the fact is with bitcoin having climed so fast there isn't really much you could invest it in that would have performed better than just holding the bitcoins. I guess you could make bitcoin denominated loans but the combination of lack of effective regulation and the aforementioned rise in bitcoins value would probablly lead to an extremely high default rate on such loans.
Re:Legal (Score:5, Insightful)
Never underestimate the power of greed to suspend normal thinking processes.
Re:Legal (Score:5, Insightful)
Doesn't this mean bitcoin is now illegal?
No, it means that bitcoins are just like real money! You can commit real financial fraud with them.
Re:Legal (Score:2, Insightful)
Re:Legal (Score:5, Insightful)
Unfortunately, virtually every practical means of investing in stupidity break the law; and the ones that don't (the lottery, for example), the government itself runs.
If you can find a new way they haven't yet banned to extract money from the stupid (eg. "payday loans", but those look near the end of their glory days), you will find yourself very, very wealthy.