Earlier today in New York a man has pleaded guilty to what federal authorities say is the ‘world’s first bitcoin securities fraud’ case.
Trendon Shavers of McKinney, Texas has pleaded guilty to a count of securities fraud after he admitted to Sarah Netburn, United States Magistrate judge, that he had ‘made false claims to investors’. In a sad turn of events; he admitted to the crime in court on his 33rd birthday.
“I know what I did was wrong, and I’m very sorry,” he said.
To recap, bitcoin, invented in 2008, is the world’s most popular digital cryptocurrency. This makes it different from most forms of currencies in that it allows its users complete anonymity when making purchases. Whilst this makes it ideal for use on the darkweb drug markets such as silkroad, it also means there are no layers of security once your coins have left your wallet. This has not stopped the currency from gaining popularity and value, as a single bitcoin is worth hundreds of US dollars.
The case prosecutors said Shavers, who founded and ran ‘Bitcoin Savings and Trust’, had at one point seven percent of all publicly available bitcoins. During the time his scheme took place, 2011-2012, the bitcoins in his possession had a total worth of $807,380 at the time. In today’s market the same amount would be worth billions.
According to Assisstant U.S Attorney Michael Ferrara, Trendon Shavers only invested some of the bitcoins given to him by his clients. The majority of his business was “receiving money from investor B to pay investor A” Mr Ferrara says. Going on to add the trust had all “the tell tale signs of a Ponzi scheme.”
The U.S. Attorney Preet Bharara adds Trendon’s scheme “yielded high returns for himself rather than his investors” and that “Instead of reaping gains, his investors were largely swindled out of their money in a cyber-age Ponzi scheme”
Prosecutors have said that in the year before the scheme was shut-down, Trendon had hoodwinked an estimated 50 percent of his investors into giving him some or all of their bitcoins.
After the shut-down in September 2012, a warrant for Trendon’s arrest was given and carried out in November; after which he was released on bail. His sentencing is to take place on Feb 3, 2016. It is estimated that with his plea agreement he will face roughly three years in prison.
Trendon Shavers has also faced a separate civil action class case in the Eastern district of Texas, where he has been ordered to pay $150,000 in civil penalty and more than $40 million in disgorgement.