NEW YORK Trendon Shavers, founder of Bitcoin Savings and Trust, has been charged with fraud and accused of masterminding a $4.5 million Ponzi scheme, according to federal prosecutors in Manhattan who said it was the first U.S. securities-fraud prosecution tied to the electronic currency.
Shavers, 32, who operated the firm that made virtual currency-based investments through the Internet, raised at least 764,000 bitcoins through his business, Manhattan U.S. Attorney Preet Bharara said in a statement.
At the peak of the scheme, Shavers raised and had in his possession about 7 percent of all the bitcoins in public circulation, Bharara said.
From September 2011 through September 2012, Shavers, using the name pirateat40, solicited investments in Bitcoin Savings on Bitcoin Forum, an Internet site where investment opportunities are posted, the U.S. alleged.
Shavers allegedly offered investors who lent bitcoins to Bitcoin Savings as much as 7 percent interest weekly an annualized interest rate of 3,641 percent and investors were told they could withdraw their investments at any time, according to the statement.
Shavers also claimed the investment by Bitcoin Trust would be used to support a market-arbitrage strategy that included lending bitcoins, trading bitcoins using online exchanges and selling bitcoins locally via private off-markets transactions, according to the U.S.
Shavers in truth largely failed to execute the claimed market arbitrage strategy and failed to deliver the agreed upon rates of interest, according to prosecutors.
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Bitcoin head charged in US securities case