Bitcoin Ponzi Scheme Perpetrator Fined $40 Million

A Texas man found guilty of defrauding US bitcoin investors faces over $40m in fines and penalties.

AccessTimeIconSep 19, 2014 at 3:30 p.m. UTC
Updated Dec 12, 2022 at 12:42 p.m. UTC

A Texas man charged with defrauding consumers through an illicit investment vehicle has been ordered to pay more than $40m in fines by a federal judge.

The Thursday ruling brought to close a case launched last July that drew headlines at a time when many in the mainstream US media were only first learning about bitcoin and its related technology.

Trendon Shavers, the founder and operator of Bitcoin Savings and Trust (BTCST) had reportedly accrued more than 700,000 BTC in customer funds, worth roughly $64m at the time of his arrest.

US Magistrate Judge Amos Mazzant wrote:

"The uncontested summary judgment evidence establishes that Shavers knowingly and intentionally operated BTCST as a sham and a Ponzi scheme, repeatedly making misrepresentations to BTCST investors and potential investors concerning the use of their bitcoins, how he would generate the promised returns, and the safety of the investments."

Notably, many subsequent government warnings by US regulators, both on the state and local levels, cautioned against bitcoin's potential use in Ponzi schemes.

Nonetheless, Shavers' actions were widely denounced in the community, including the Bitcoin Foundation's general counsel Patrick Murck.

Legal findings

Judge Mazzant found that Shavers violated securities laws by selling fraudulent bitcoin investments to consumers and using the funds of new investors to reimburse older investors.

Shavers, who was not represented by a lawyer during the trial, countered these allegations by arguing that BTCST was not subject to US securities laws that prohibit Ponzi schemes, due to the fact that bitcoin is not considered money under federal law.

Judge Mazzant ruled differently, ultimately determining that investments made to BTCST met all the requrements of investment secuities and therefore were subject to their related laws.

Shavers was eventually charged with violating anti-fraud and securities laws in a complaint filed in the US District Court Eastern District of Texas.

Calculating the damages

Perhaps most notable were the methods the US court used to calculate the damages in the case, given that the price of bitcoin is prone to fluctuations.

The fine was determined based on the average daily price of bitcoin on 26th August, 2012 when the scheme was uncovered, and includes $38.6m in profits BTCST earned fraudulently, associated interest of $1.8m as well as a $150,000 civil fine awarded to Shavers.

At a press time price of $399.02, the 700,000 BTC Shavers earned from investors is worth roughly $279m.

Image via Shutterstock


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