SEC Alleges 'Bitcoin Savings & Trust' Is a Ponzi Scheme

New submitter craighansen writes "The U.S. Securities and Exchange Commission has filed a lawsuit against a man they allege ran a Ponzi scheme using Bitcoin. According to the complaint (PDF), during 2011-2012, Trendon Shavers, operating under the username pirateat40, collected investments of over 700,000 Bitcoins from at least 66 'investors' (a valuation of $4.5M) with the promise of as much as 7% weekly returns. These 'investors' received about 500,000 Bitcoins in returns, so on average, they're probably much better-off than investors in Madoff's scheme. Nevertheless, with the rising value of Bitcoins, the $4.5M investments would be worth $65M at recent pricing if they had actually been left in Bitcoins, which approximates the 1% per day returns that the scheme promised."

Comments

Re:Money, Its all a ponzi scheme

[Sockatume]

Not sure you have a good grasp of what a Ponzi scheme involves. In a Ponzi scheme there's no making money off other people's money. There's no making money off anything. It's like trying to build a hill in a sandbox. You drag the sand in to the middle, which makes the middle go up, but the edges go down to form a moat. So you drag sand in from further away. The moat gets deeper, and the hill gets higher. The total amount of sand stays the same; all that happens is that it is redistributed. So long as you keep dragging sand around, people think the hill will get bigger forever, because the moat's never in the same place very long.

Except when you run out of sand and have no way to fill in the moat.

http://en.wikipedia.org/wiki/Ponzi_scheme