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SEC Files Investor Fraud Lawsuit in Bitcoin Ponzi Scheme Case

The Securities and Exchange Commission (“SEC”) filed its first investor fraud lawsuit against Bitcoin Savings and Trust, and its owner and founder, Trendon T. Shavers, for using the virtual currency, Bitcoin, to perpetrate a Ponzi Scheme. According to the Complaint, Bitcoin (“BTC”) is a virtual currency that is traded on virtual exchanges for conventional currency, or can be used to purchase online goods and services. The SEC alleges that from September 2011 through November 2012, Shavers raised 700,000 BTC from 66 investors for a total of $4.5 million in cash. In exchange, Shavers promised investors a 7% weekly return based on BTC arbitrage. Further, Shavers represented to investors on online forums that the “risk is almost 0.” The SEC further claims that Shavers did not trade BTC, but instead, used new investor funds for day trading, for personal use or to pay off early investors.

Similarly, the SEC issued an investor alert regarding the potential for Ponzi Schemes using Bitcoin, since Bitcoin has no single administrator, central authority or repository. The SEC investor alert states, “We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments and transactions. . . Any investment in securities in the United States remains subject to jurisdiction of the SEC, regardless of whether the investment is made in U.S. dollars or a virtual currency.”

Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Additionally, Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses, including losses suffered in Ponzi Schemes. Please contact our team of attorneys for a consultation at (212) 696-1999.