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Crime Bitcoin The Almighty Buck

Bitcoin Ponzi Scheme Operator Pleads Guilty To $150M Fraud 114

JustAnotherOldGuy writes: Bitcoin Savings & Trust founder Trendon Shavers pleaded guilty to fraud over his company's Ponzi scheme, whose victims believed they would earn one percent interest every three days — an annual rate of 3,641 percent. Shavers used new depositors' money to pay the existing depositors, and skimmed enough cream to pay for a car, a $1000 Vegas steak dinner, and plenty of casino gambling. He cost his depositors about $150M and was holding onto $40.7M in Bitcoin when he was arrested. At his peak, he controlled about 7 percent of all Bitcoins in circulation. He netted $164,758 from the scheme. 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.
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Bitcoin Ponzi Scheme Operator Pleads Guilty To $150M Fraud

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  • Good idea (Score:5, Insightful)

    by DogDude ( 805747 ) on Tuesday September 22, 2015 @10:23AM (#50574557) Homepage
    It's not a bad idea. If you're going to do a Ponzi scheme, it makes sense to target a population that already has proven too gullible for it's own good: Bitcoin users!
    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Explains why Banks are interested in Bitcoin now!

      • Explains why Banks are interested in Bitcoin now!

        Actually they are interest in blockchain technology, a bitcoin is just one of many things a blockchain can be applied to.

        • by Anonymous Coward

          Just to split hairs further, banks are interested in blockchain technology, especially if they control the 51% interest.

          This gives them the ability of appearing 100% cryptographically fair to the rest of the people out there... but still have the ability to pull currency out of nowhere when needed, and since they have 51%, whatever they says goes for the entire blockchain they control.

          This is also why banks are so afraid of blockchains they can't control. Since BitCoin is controlled by one party with 51%,

    • Re:Good idea (Score:5, Insightful)

      by gstoddart ( 321705 ) on Tuesday September 22, 2015 @10:50AM (#50574845) Homepage

      The parent is modded flamebait, but honestly .... "an annual rate of 3,641 percent".

      If anybody is gullible enough to believe that, they really are clueless.

      That's one of those things where if anybody suggests that you should run away, and realize you're being lied to.

      That's an awful lot of people who apparently couldn't think through and ask "is this even possible?".

      • Re:Good idea (Score:5, Insightful)

        by Skater ( 41976 ) on Tuesday September 22, 2015 @11:25AM (#50575193) Homepage Journal
        I'll say something that gets said every time: They probably weren't clueless. They were probably hoping they were close enough to the ground floor of the scheme to cash in.
        • You know, I guess I won't discount that someone knows it's a Ponzi scheme and figures that's OK as long as they cash out first.

          So, either these people were clueless, or they were assholes? That doesn't reflect well on humans.

        • I'll say something that gets said every time: They probably weren't clueless. They were probably hoping they were close enough to the ground floor of the scheme to cash in.

          Nah. They were clueless. It happens all the time, especially with people who come from countries without a long history of capitalism. My ex-girlfriend was born and raised in China and when we started dating she had only lived in the US a few years. She knew I had some stocks and used to ask me questions and she basically had the idea that it was impossible to lose money in the stock market and that I was stupid for not putting every cent I had into it because I was just passing up free money. I'd love

        • Or at least not all of them. The BTC faithful are really uneducated when it comes to money. Many really thought that Bitcoin would just grow forever. I had one confidently tell me that in two year (this was about 2 years ago) it would be worth over $10,000 per Bitcoin and so on.

          So I'm sure there were a fair share of dummies that really did think that magic Bitcoins = tons of interest through some magic method. They thought that normal rules of money didn't apply because this was the Internet, or some such c

          • by Troed ( 102527 )

            Calculations of possible future worth of bitcoin are indeed based in "normal rules of money".

            If X of something (illegal drugs, remittance) is done through Bitcoin (because lower fees, pseudonomity, whatever the reasons) then the value of the total Bitcoin network must be able to handle Y size economic transfers. Since there's a finite number of bitcoin at any point in time that means the valuation of a bitcoin needs to be Z.

            The "only" thing you need to guess is the likelihood of X happening for a reasonable

          • Or at least not all of them. The BTC faithful are really uneducated when it comes to money. Many really thought that Bitcoin would just grow forever. I had one confidently tell me that in two year (this was about 2 years ago) it would be worth over $10,000 per Bitcoin and so on.

            One? You must be around some pretty smart folk then... 'cos over here on slashdot we've had multiple retards tell us that BTC would be $10k soon - see this person for example. [slashdot.org]

      • Enough gullible people to cause this scammer to get 7% of bitcoins in his control.

      • by delt0r ( 999393 )
        Well I just got this great offer to help out a nigerian prince! Oh and another dead relative in africa i have never heard of. They will give me millions, i just have to give em 50k for transaction fees. I mean you clearly don't take transaction fees out of the wad of cash being sent to you now do you.

        Seriously there are a *lot* of stupid people with money.
    • Sounds like a good deal to me. I'd be willing to earn $1 Million per month in jail. Too bad he got greedy, and forgot to cash out.

    • Bitcoin the real ponzi, amirite?

  • by Translation Error ( 1176675 ) on Tuesday September 22, 2015 @10:26AM (#50574589)
    In further news, Trendon Shavers has just received 20 consecutive 41 month prison sentences.
  • He netted $164,758 from the scheme.

    Huh. That seems kinda... low, given the sums quoted. What about the $40.7M in bitcoins he was "holding on to"?

    arrested in November, two months after a federal judge in Texas ordered him to pay $40.7 million

    Ah, maybe that's what it was for.

  • Seems like a reasonable target. I bet he learned the lesson from Madoff: "If it sounds too good to be true, you are dealing with an amateur."
    • Wait, 1.01^121 (every third day) is 3.3 So we are talking about THREE HUNDERT percent a year. Never mind.
      • Wait, 1.01^121 (every third day) is 3.3 So we are talking about THREE HUNDERT percent a year. Never mind.

        It's unclear where TFS got its numbers. TFA says:

        claiming he would pay investors one percent interest on their investment every three days, or seven percent a week.

        I'm guessing that the article is implying these are two different options? Because obviously 1% every 3 days != 7% per week.

        The first option (assuming a year length of 365.25 days) gives the result of about $336 with an initial $100 investment, making a net profit (annual return) of about 236%.

        The second option gives about $3414 with a $100 investment, resulting in an annual return of 3314%, which is at least in the ballpark of the number of 3641% liste

        • If the interest is paid every three days, on day 4 you're getting interest on your interest. On day 8, you're getting paid interest on the interest on the interest. At the end of a year, you've made thousands of percent. Compound interest is very powerful and it's how the vast majority of millionaires become millionaires.

          You put in a little bit of money and over time your money makes money, and that money makes more money, which in turn makes even more money. If you don't "get" the power of compoundin

          • It's one of the most powerful forces which affects your financial security.

            More like one of the most overrated sops to keep people quiet: "if you just save your money and work hard, later you will get a lot of money!".

            Especially now we have an interest rate at nearly zero percent and inflation higher than that, "compound interest" is just an easy way to support those poor starving bankers.

            • > Especially now we have an interest rate at nearly zero percent and inflation higher than that,

              So interest is an insignificant amount of money.

              > "compound interest" is just an easy way to support those poor starving bankers.

              Which covers the $150 billion profit that banks make each year, along with all of their expenses.

              Pick one.

              • by moeinvt ( 851793 )

                Banks do not accumulate $150 billion by lending their own money, or their depositors' money and charging interest. Nor do they get this by payments for handing card and check transactions. Thanks to their scam of fractional reserve banking, banks are granted the privilege of creating money out of thin air and loaning that money at interest as well. Easy to generate profits when you can loan out money you don't actually have.
                Almost all of the money in the U.S. economy is "created" based on a debt obligat

                • > ALL the people doing the real work and producing all of the real goods and services in the economy struggle under a debt burden

                  If you don't have extra money to throw away, wasting your money on debt service is stupid.* Many people do that, but certainly not ALL. Some of us were taught how to make a budget. Personally, I was taught in a Dave Ramsey class, after I spent half my life doing stupid.

                  * Because houses generally INCREASE in value over time, borrowing to help buy the house you need anyway

                • Banks do indeed lend out their depositors' money and charge interest. What you don't seem to see is that this is what allows fractional reserve banking.

                  If the bank had to keep my money safe but couldn't lend it out, it really wouldn't serve any purpose. If it can lend out some fraction of my money, then they've increased the total money supply and we have fractional reserve banking. I deposit $1K, they lend $500, so I have $1K in the bank and somebody else has $500 when we started with my $1K. The ba

            • Especially now we have an interest rate at nearly zero percent and inflation higher than that, "compound interest" is just an easy way to support those poor starving bankers.

              If you're referring to interest rate that individuals can get (and not on the inter-bank rate, which is what is reported on the news), you can get way more than that, relatively safely.

              CDs are over 1%, well over.

              You can get several percent in dividends in safe companies' stock.. (yes, leave it there for a LONG time, it will likely come

          • If you don't "get" the power of compounding, PLEASE look it up. It's one of the most powerful forces which affects your financial security.

            Uh, what are you talking about? My calculations included compounding, as could be easily verified it you tried yourself.

            If it were simple interest, the 1% every 3 days would only earn approximately 121% per year. As I said in my calculations, it's well over 200% per year. Why? Compounding.

            You wanna be a jerk? Fine -- but be sure you have a freakin' clue of what you're talking about first.

            • You're right. Doing the math in my head, I put the decimal point in the wrong place.

              I intended to be helpful, not be a jerk. If an adult doesn't see the power of compounding, either the monthly compounding they're paying on a credit card or the compound returns they could be earning, there is a opportunity for them to benefit considerably by gaining an understanding of how it works.

              Certainly you, understanding the math, wouldn't say you'd want people to be blind to the true cost of their Capital One card

    • by Nutria ( 679911 )

      The summary says "one percent interest every three days", which is nowhere near 3.6% per year.

      • by Dunbal ( 464142 ) *
        GP probably has $40k of credit card debt at a low low 20% APR and thinks he's getting a sweet deal.
  • by MagickalMyst ( 1003128 ) on Tuesday September 22, 2015 @10:28AM (#50574623)
    Never trust any company that uses the word "trust" in their slogan or marketing campaigns.

    Trust is earned; not implicitly stated.
  • Bitcoin seizure (Score:2, Interesting)

    by Anonymous Coward

    At his peak, he controlled about 7 percent of all Bitcoins in circulation.

    Although the article doesn't explicitly say so, his bitcoin wallet was presumably seized as part of his arrest and conviction. Given this and other similar high profile cases, it seems that the U.S. government may now control a not-insignificant minority of all bitcoins currently in circulation. It's difficult to see how that can be good for a system like bitcoin whose express purpose is to provide an alternative to traditional curr

    • At his peak, he controlled about 7 percent of all Bitcoins in circulation.

      Although the article doesn't explicitly say so, his bitcoin wallet was presumably seized as part of his arrest and conviction. Given this and other similar high profile cases, it seems that the U.S. government may now control a not-insignificant minority of all bitcoins currently in circulation.

      Until the hard drive with the wallet (encryption keys) crashes and we find that there are no backups. :-)

    • Given this and other similar high profile cases, it seems that the U.S. government may now control a not-insignificant minority of all bitcoins currently in circulation. It's difficult to see how that can be good for a system like bitcoin whose express purpose is to provide an alternative to traditional currencies.

      As usual, some explanation: The core innovation of alt-currencies, is the bitcoin protocol itself. It works in distributed manner and guarantees thus that there is *no central authority*.
      There's no "Bitcoin, inc." company that you can goto and force to shut down or attempt to manipulate with court orders.

      No matter which entity at a given point of time holds 10% of all BTCs in circulation. That doesn't change much.
      At worst, said entity could decide to attempt to manipulate exchange and either withhold the bi

  • Talk about fools and their money... people believing 1%/3d for any actual investment are beyond gullible. If it wasn't BitCoins, it'd be something else, like 419 fraud.

  • Why are they illegal? What did he do that was not done by the bankers in 2009?

    Both used complex instruments that their clients did not understand, derivatives, tranches, bitcoints...

    They both talked a lot of mumbo jumbo. But it was clear the bankers did not believe in the crap they were selling. It emerged they were actively betting that their customers are going to lose a ton of money in the same deal they were selling them. They rated the mortgage backed securities in the same class as US T-bill but wer

    • by Anonymous Coward

      Why is this makes as troll? WTF is wrong with you moderators!

      While he is wrong, the entire scam began in about 2001/2002 of countrywide seeking toxic loans in bulk to other institutions known as CDOs the process have people making minimum wage the ability to buy $200K properties.

      How does this differ from a ponzi scheme? It's w worse than a ponzi scheme. You are giving the consumer a false sense of security that they'll be able to make money off their investments. The bankers knew damn well early in the

      • by mvdwege ( 243851 )

        It's a troll because it's the same tired tu-quoque fallacy the BitCoinBoys trot out when another BitCoin scam story breaks out. The moderators are fine; I personally would have selected 'Redundant', but that post otherwise deserves to be buried at -1.

  • He should have taken the money and run long ago - I mean, it's Bitcoin, he didn't even have to launder it!

    • I mean, it's Bitcoin, he didn't even have to launder it!

      Actually, it's quite the opposite:
      - there's no central authority on bitcoin transaction. and because there isn't, that missing central authority can't keep secrecy on transaction.

      Instead, at the centre of bictoin protocol is the block chain.
      - A sort of cryptographically secured big ledger of all transaction.
      - Any new transaction is broadcast to the whole network.
      - Every single node of the network gets a copy from the transaction in it local copy of the ledger ( <- the whole point of the "distributed" nat

  • I personally tore him a new ass on the bitcoin forums when he was promoting this idiotic, clearly fake investment. Everyone else supported me. Only complete morons invested with him.
  • Apparently, there's a sucker born every millisecond.
  • IANAL but it sounds like his prison time will be about the same as you'd get for normal robbery (without weapons or other aggregating factors).

    Lesson to be learned...if you're going to steal, steal a LOT.

  • https://en.wikipedia.org/wiki/Bernard_Madoff

  • How much of an idiot does someone have to be to invest with a guy whose nickname is "pirateat40" and who promises you returns of 7% per *week*? Doesn't anything seem fishy? Even Madoff had some people doubting his methods right up until the end, and he had a whole office dedicated to producing fake statements/trade confirmations.

    It amazes me that there are people this dumb about money, AND that there's an even greater push to make people manage their own retirement accounts and health insurance purchases. S

  • Nothing is funnier than people investing their money, with a guy that has the nickname... "PIRATE".

    Then complaining that they lost their money.

    "Hello, police? I gave this guy money to invest and he stole it all!"

    "Whats his name"

    "pirate at 40" ...

    • I chuckled when I saw his nickname.

      It's one thing for a spoof movie to name the villain "Dr. Evil", but if you're going to go around handing your money to a guy name Pirate based on a too-good-to-be-true get rich quick scheme don't act too surprised when all goes pear shaped.

  • government sucks. it is full of abuses and corruption and malfeasance

    however, it is simply superior to all of the abuses possible without government, or with weak government

    people who talk about a need for government do not love government. they aren't blind to the problems inherent with government. they instead have a wisdom you lack: lack of government or weak government is simply worse than all the problems you have with government. it also doesn't mean we don't clean up government, of course we can do b

    • by moeinvt ( 851793 )

      "government sucks ... it is simply superior to all of the abuses possible without government, or with weak government"

      Are you making that claim only in the context of the USA or would you apply it to the whole world? In the 20th century alone, governments have murdered well over 200 million people. Another 37 million have died and countless more have been maimed in wars largely caused by governments. Then, add in all of the people who have been tortured, incarcerated and otherwise abused by agents of gov

      • by Voogru ( 2503382 )

        But what about the roads?

        "How could the absence of government possibly result in abuses any worse than that?"

        Some people may argue about the blood feuds in history were pretty shitty, but they can't hold a candle to governments. When you look at the current problem in the middle east, it's the blood feuds multiplied by a million times. Your ancestors did shitty things to us, so we're going to do shitty things to you. We do shitty things to you, so you do shitty things to us in retaliation, then we do shitty

      • That 200 million people includes lots of people who starved to death because their governments screwed up badly. If those governments hadn't been there, the screwups would have been worse, and more people would have died.

        Have you looked at people being tortured, incarcerated, and otherwise abused by private enterprise? Where governments are weak or corrupt, there's a lot of trafficking in slaves of various sorts. There's lots of people making examples of other people. Governments are hardly perfect,

        • by Voogru ( 2503382 )

          You mean like the Holodomor? When the government confiscated farms and food and let people starve to death?

          Yeah, I think if the government left them alone they'd have been fine.

          • The Holodomor was a deliberate government action, yes. The Great Leap Forward was a major screw-up, as can happen under various circumstances. The only way to avoid such screw-ups is to stick to traditional methods, which could not possibly support the current population (cf. Iceland, which was very reluctant to switch from traditional farming).

            If the government left the Ukraine alone during the Holodomor, the people there would have done better, but modern agriculture does require some sort of infrast

    • I fail to see your point since Ponzi schemes happen under the US dollar at least as frequently. And I don't see any evidence that the people who fell for this scheme had any predominant belief that laws against fraud shouldn't exist.
  • Really, if it looks far, far too god to be true, then it is. However these things find their victims time ans again. Truly fascinating and explains a lot of other things that go wrong. Incidentally, Ponzi did this US-wide in 1920, but the idea is significantly older. So victims are not only stupid, but also ignorant.

  • This may not have been a ponzi scheme actually. What Trevor was probably attempting to do is equivalent to short selling a stock into oblivion. Namely, he was borrowing all the bitcoin he could and then dumping it on the market, hoping he'd have a big enough influence to push the price down enough to make up for his 1% interest per 3 days.

    What he did with the money after selling the bitcoin, (the Las Vegas dinners, and gambling, etc.) doesn't really matter to the business plan, and therefore irrelevant.

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