In May 2022, the U.S. Securities and Exchange Commission (SEC) announced they were nearly doubling the size of the Crypto Assets and Cyber Unit. This series will explore enforcement actions taken by this unit since its inception in 2017, plus earlier actions taken by the SEC prior to the formation of this unit.
The Crackdown
SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme
Description: The Commission charged Shavers and his company with defrauding investors in a bitcoin-denominated Ponzi scheme, raising more than 700,000 bitcoins in principal investments from Bitcoin Savings and Trust (BTCST) investors, and falsely promising of up to 7% weekly returns based on BTCST’s purported bitcoin market arbitrage activity.
Crypto Assets
Date Filed: 23 July 2013
Penalty: Final Judgment Entered Against Trendon T. Shavers, A/K/A/ "Pirateat40" - In 2016, he was ordered to pay more than $40 million in disgorgement and penalties as part of a civil action. In 2018, he was sentenced to 18 months in prison, 3 years of supervised release, and ordered to pay 1.2 million in forfeiture and $1.2 million in restitution as part of the criminal case.
Violations: The SEC’s complaint charges Shavers and Bitcoin Savings and Trust (BTCST) with offering and selling investments in violation of the anti-fraud and registration provisions of the securities laws, specifically Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The SEC is seeking a court order to freeze the assets of Shavers and BTCST in addition to other relief, including permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.
The Backstory
Trendon Shavers operated Bitcoin Savings & Trust as a Ponzi scheme for a period of about one year, beginning in 2011. He promised investors they would earn 1% interest , with a minimum required deposit of 25,000 BTC. He claimed that their invested BTC would be used for arbitrage, such as lending to others, trading on online exchanges, and selling via over-the-counter transactions. He also promised that investors would be able to withdraw their investments at any time and that he guaranteed to cover any losses in the event of a market change.
He did not deliver on any of those claims and instead, shuffled money from new investors to make purported interest payments and cover withdrawal requests for existing investors. In August 2012, he shut everything down and vanished. In the end, roughly half of the investors lost all or part of their investment.
As alleged, Trendon Shavers managed to combine financial and cyber fraud into a Bitcoin Ponzi scheme that offered absurdly high interest payments, and ultimately cheated his investors out of their Bitcoin investments. This case, the first of its kind, should serve as a warning to those looking to make a quick buck with unsecured currency.
Preet Bharara, U.S. Attorney
The complaint alleged that over the life of the Ponzi, he raised at least 764,000 BTC, worth approximately $4.5 million at the time, based on the average price of BTC during that period. At BTC's 2021 all-time high of $68,789, this would have been worth $52.6 billion. At the peak of the Ponzi, Shavers possessed 7% of all BTC that were in public circulation.
In September 2014, the SEC entered a judgment ordering him to may more than $40 million as part of a civil action.
In November 2014, Shavers was arrested and charged with securities fraud and wire fraud, each of which carry a maximum sentence of 20 years in prison. Additionally, securities fraud has a maximum fine of $5 million and wire fraud has a maximum fine of $250,000. In July 2016, he plead guilty to securities fraud and was sentenced to 18 months in prison for securities fraud. The wire fraud charge was dropped as part of his plea agreement.
Applying a modern spin to an age-old fraud, Trendon Shavers used a Bitcoin business to run a classic Ponzi scheme. Shavers raised money in the form of Bitcoins by promising spectacular returns and personal guarantees, when all he was really doing was paying back old investors with new investors’ Bitcoins. Thanks to the FBI and prosecutors in this Office, the first federal securities case involving Bitcoins has ended in Trendon Shavers being sentenced to prison.
Preet Bharara, U.S. Attorney
