Bitcoin Savings and Trust and its owner has been ordered to pay $40.7 million in a Securities and Exchange Commission case which established that the company sold investments using the virtual currency using a Ponzi scheme. U.S. Magistrate Judge Amos Mazzant of Texas said that Trendon Shavers knowingly and intentionally operated his company as a sham and Ponzi scheme misleading investors about the use of their Bitcoin and how he would generate the promised returns.
Shavers’ lawyer withdrew from the civil case this week, court records show.
The SEC said Shavers used the online moniker “pirateat40” to raise more than 732,000 bitcoin from February 2011 to August 2012, promising investors up to 7 percent in weekly interest to be paid based on his ability to trade the currency.
But according to the decision, Shavers used new bitcoin to repay earlier investors, diverted some to personal accounts at the now-bankrupt Mt. Gox exchange and elsewhere, and spent some investor funds on rent, food, shopping, and casino visits.
“The collective loss to BTCST investors who suffered net losses (there were also net winners) was 265,678 bitcoins or more than $149 million at current exchange rates,” wrote Mazzant, who sits in Sherman, Texas.
Mazzant held Shavers and his company liable to give up $38.6 million of illegal profits plus $1.8 million in interest. Each defendant was also fined $150,000.
The SEC announced the case on July 23, 2013, the same day it warned investors to be on alert for potential scams involving bitcoin and other “cutting-edge” investments.
Jeffrey Newman represents whistleblowers