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Bitcoin The Almighty Buck The Courts

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."
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SEC Alleges 'Bitcoin Savings & Trust' Is a Ponzi Scheme

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  • interesting (Score:2, Interesting)

    by poetmatt ( 793785 )

    so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?

    • Re:interesting (Score:4, Insightful)

      by Anonymous Coward on Wednesday July 24, 2013 @08:19AM (#44369197)

      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.

    • by sirwired ( 27582 ) on Wednesday July 24, 2013 @08:23AM (#44369223)

      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.

      • Think about it. The US dollar has always had PLENTY of competition. You want to do business in Mexican pesos or British pounds? That's always been legal. The only thing you can't do is refuse to acknowledge dollars as legal tender.
      • by tmosley ( 996283 )
        Unless the perpetrator is a TBTF bank, in which case they aren't allowed to intervene.

        Sounds like bullshit, but government officials have said as much openly and on the record. How ANYONE could have ANY money in a system like that, I will never know.
      • I invested in a good lunch...but now I am afraid my investment has turned to poo! Did the cafeteria defraud me? Should I contact the SEC?

    • Re: (Score:3, Informative)

      by Anonymous Coward

      The SEC does *not* regulate currencies. It does, however, regulate investment companies, with the protection of the public in mind.

    • by 1s44c ( 552956 )

      so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?

      For the amount of money involved I think they would be involved if it was a scam involving sea shells or wooden tally sticks.

  • by deego ( 587575 ) on Wednesday July 24, 2013 @08:36AM (#44369285)

    What's new this time around is the SEC charge. []

    And, calling this a is a problem with bitcoin is like blaming the US Dollar for Bernie Madoff: []

    • I like quoting myself too.
    • Neither Slashdot, the article, nor the SEC are saying that it is a bitcoin problem; it's your standard scheme exploiting irrationality around a commodity, that happens in this case to be bitcoins.

    • by Yebyen ( 59663 )

      What's new this time around is that he's in custody. I haven't read the article, but I got grapevine news from someone who reads more than I do that yesterday, PirateAt40 was taken into custody and caught with 700000 bitcoins in his wallet.

      I told her I was honestly surprised he was in police custody and not the recipient of a brand new Colombian Necktie.

      • by Yebyen ( 59663 )

        I cannot confirm that he is in custody, but I heard "they got him". Reading this article I am starting to doubt it. There is little doubt for anyone who knows the Pirate Savings and Trust (that's what it was called first) that it is a scam, a lot of people lost their money and this is almost certainly not a big stunt for Bitcoin publicity. (heh)

      • by 1s44c ( 552956 )

        700,000!? That's 66 million USD at current market prices.

        That's one hell of a con.

        • by Yebyen ( 59663 )

          Amazing that so many people trusted "First Pirate Savings and Trust" with 700,000 of anything, be they pennies or $17-coins or $1-coins or $12-valued or whatever. They are certainly worth more now than they were. If he started returning the money today, it's arguable that he would have made a great deal for all of his customers by forcing them to hold onto the coins for a longer amount of time until the market rate had gone sufficiently high to make it worthwhile cashing out.

          "First Pirate Savings and Trus


    Build private compound

    Employ armed guards


    • by h4rr4r ( 612664 )

      Because the mexican's won't extradite?

      • You're right I forgot they have an extradition treaty and occasionally use it. There are plenty of other countries to choose from, pick one from the ALBA group.

    • by rwyoder ( 759998 ) on Wednesday July 24, 2013 @09:34AM (#44369665)


      Build private compound

      Employ armed guards


      If you chose Belize, you could pick up a pre-built compound, and some currently unemployed, (but experienced), guards.

    • by 1s44c ( 552956 )


      Build private compound

      Employ armed guards


      With 66 million in digital currency he better have a private army bigger than the zeta's and the police put together.

      Actually he doesn't need it now, he will be quite safe in jail. Well moderately safe. Less of a target anyway.

  • Yeah, we all knew it was a ponzi when it was running. No, really. Go read some of the old threads on the forums.

    Some people were just happy to collect "earnings" while it was running. A few people even managed to cash out before it all went to shit.

    Also, keep in mind that most of the losses reported by people were their account balances after a few months of compounded 7% per week "interest" (LOL). The actual losses were much lower.
  • If they had 500,000 bitcoins then those investors have a large percent of the market. Doesn't bitcoin max out around 20M bitcoins? Sure you can buy/sell using fractional bitcoin but if a small group of people are already hoarding several percent of the currency when hardly anyone is even using it yet, that doesn't look like a good future for it.
    • by King_TJ ( 85913 )

      I think the hoarding is an unavoidable consequence of a new/young currency that allows individuals to help "mint" it?

      If you invest a lot of money and effort into mining bitcoins or other e-currencies, you're starting out in a situation where your up-front costs to do it are large, and initial payback is small. You *could* take a long-term view of things thinking "If I keep my systems mining the coins for several years, I'll eventually pay them off and start coming out ahead." but IMO, few of the miners do t

      • Get rid of them. Swap them for bitcoin and do it as soon as you can. Any alt-chain is likely to be worth exactly nothing. Only the inflationary ones are interesting. But don't keep them, because they'll lose their value as time goes by. Use bitcoins, and spend them like a regular currency.

        It'd be like having lots of Estonian Kroon while living in the USA. Useless, you can't even spend them in Estonia (who have switched to the Euro). Sure you could change them, for now, but sooner or later you won't be able

  • Madoff operated under their noses for years despite numerous warnings by competitors that his results were impossible and likely a fraud. Wall Street itself is a ponzi scheme.

    For several years, one big financial firm after another cratered or had to be bailed out and all we heard from the SEC was crickets. And now they're on the warpath against bitcoin.

  • So if it works or near works it's still a Ponzi scheme really?

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