Texas Man Charged In New York In First Bitcoin Ponzi Scheme Case
NEW YORK (CBSNewYork/AP) -- Federal prosecutors in New York on Thursday announced the first bitcoin securities fraud case, accusing a Texas man of engineering a Ponzi scheme by getting people to turn over their bitcoins in return for promises of high interest rates and the ability to recoup their investment at any time.
Trendon Shavers, of McKinney, Texas, awaited an initial court appearance in Texas on securities fraud and wire fraud charges that were outlined in a criminal complaint unsealed in U.S. District Court in Manhattan.
``This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency,'' U.S. Attorney Preet Bharara said in a news release.
Bharara said the 32-year-old Shavers combined financial fraud and cyberfraud into a bitcoin Ponzi scheme offering ``absurdly high interest payments, and ultimately cheated his investors out of their bitcoin investments.''
At the peak of the scheme, Shavers possessed about 7 percent of all bitcoin in public circulation, prosecutors said.
George Venizelos, head of the FBI's New York office, said Shavers ``used a new currency, but the same old reprehensible tricks.''
``He claimed to offer a bitcoin market-arbitrage strategy. In reality, it was nothing more than an insidious scheme motivated by greed. Today, Shavers' jig is up,'' Venizelos said.
Bharara said Shavers caused about half of 100 investors to lose all or part of their bitcoin investment from at least September 2011 through September 2012 as he promised them up to 7 percent weekly interest and assured them they could withdraw their investment at any time if they turned over bitcoins.
Authorities say Shavers has already been ordered by a federal court in Texas to give up more than $40 million and pay a $150,000 penalty in a related civil case.
Shavers did not immediately respond to a message for comment.
If convicted, he could face up to 40 years in prison.
The bitcoin fraud case was announced the same day as a separate new case against a man accused of starting a spinoff version of the most infamous online marketplaces that used bitcoin for its currency.
Blake Benthall, 26, faces a conspiracy to commit narcotics trafficking count that carries a potential penalty of life in prison and a mandatory minimum sentence of 10 years. He also faces related charges after his arrest in San Francisco on Wednesday.
Bharara said in a statement that Benthall created "Silk Road 2.0,'' a "nearly identical criminal enterprise'' website, about five weeks after the government shut down the original version last year. Authorities said the original site generated more than $1 billion in illicit business since 2011.
Authorities said the copycat version of Silk Road attracted about 150,000 active users since Benthall started it in December, acting as its owner and operator. They said it generated monthly sales of at least $8 million as it was used by thousands of people peddling illegal drugs and other illicit goods and services to buyers worldwide.
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