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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."
Doesn't this mean bitcoin is now illegal?
Yeah, I'm first knee-grow!
so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?
How does one tell /. to stop autorefresh?
Xtreme Speculators who whine when they are taken for a ride???
These are people who used to think they bought the Brooklyn Bridge
BitCoins sound like a perfect tool for flim-flam men .... have the Nigerian Princes heard of them yet ???
Why would you think it's not considered a legitimate security? A Ponzi scheme can be built on anything you like; if it's an investment, the SEC has jurisdiction.
The feds may not like BitCoins, but that's mainly due to their use for money-laundering, not because they have some sort of deep-seated fear that the USD will start feeling the heat of competition.
According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?
No kidding!!! What do you say at this point?
Comment removed based on user account deletion
The difference being, the schemers have the ability to print more and the support of the media. BitCoin is one of the first non-Ponzi currencies to come along in awhile.
I like quoting myself too.
Tic-Tac-Toe, Global Thermonuclear War, and relationships all have the same winning move.
So do I:
http://yro.slashdot.org/comments.pl?sid=4009033&cid=44369347
Tic-Tac-Toe, Global Thermonuclear War, and relationships all have the same winning move.
FTFY
"Those would have been worth about $4.5 million using the conversion rate in 2012, and more than $65 million at today’s rate. "
So let me get this straight, they invested $4.5 million Bernanke Bucks, and got back $46 million Bernanke Bucks (500000/700000*$65m), a 1000% return of capital, and he took a commission off that which is normal.
Seems he invested in the best thing to invest in, Bitcoins, and the only gripe is the commission he took.
Interesting they're calling it a Ponzi scheme, because he paid out far more (in dollars) than he promised to pay out, so he met his promises. But if you consider Bitcoin as a *CURRENCY*, a legitimate currency in its own right, then the return was 71% of the original capital.
So the Ponzi claim really says Bitcoin is a legitimate currency, same as California has claimed!
Not really, the fact is with bitcoin having climed so fast there isn't really much you could invest it in that would have performed better than just holding the bitcoins. I guess you could make bitcoin denominated loans but the combination of lack of effective regulation and the aforementioned rise in bitcoins value would probablly lead to an extremely high default rate on such loans.
note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
FLEE TO MEXICO
Build private compound
Employ armed guards
Enjoy
"When information is power, privacy is freedom" - Jah-Wren Ryel
seems to me it means they haven't paid their protection money (like Goldman, et al)...
Before money there was barter, but if you did have what I wanted and I had what you wanted then we needed to find another trader. To solve this problem the idea of using an agreed upon media of exchange came about. Gold, silver, gems, etc.. but in time these became heavy and bulky to carry around. Then the idea came up to let some party hold these exchange values and use IOU's that later became what we now call money. The Ponzi scheme began when those holding the values saw that they always had so much in their safe and decided to make loans on it and charge interest. In other words making money off the value others had.
So today we have bankruptcies yet no one can show me the less than zero value the financial numbers represent. And this is proof of the Ponzi scheme.
Money was never intended to be a product in and of itself, but only and abstract tool to better enable trade.
it's web page is godd. i contact. Hastalik, salk, tedaviler
That's my point. The scheme's operators only had to sit on the coins and pay out their actual nominal value to come out in line with even their most optimistic predictions. If they'd posited a 5% rate of return they could've even made a very tidy profit too.
No kidding!!! What do you say at this point?
Neither Slashdot, the article, nor the SEC are saying that it is a bitcoin problem; it's your standard scheme exploiting irrationality around a commodity, that happens in this case to be bitcoins.
No kidding!!! What do you say at this point?
Can anyone show me the real value the abstract numbers of money (regardless of what its called - dollar, bitcoin, yen, etc.) are supposed to represent in regards to bankruptcies and other negative financial number?
If not then doesn't this say all abstract representation is a ponzi scheme?
What's new this time around is that he's in custody. I haven't read the article, but I got grapevine news from someone who reads more than I do that yesterday, PirateAt40 was taken into custody and caught with 700000 bitcoins in his wallet.
I told her I was honestly surprised he was in police custody and not the recipient of a brand new Colombian Necktie.
Restating the obvious since nineteen aught five.
Yes it's the weekly bitcoin praise article just doing it from a different angle. Whether that claim is true or not is sadly a different story and not proven here.
It's at best Amway or Tupperware for geeks, but personally it looks very much to me like an old fashioned ponzi scheme that is baited for geek and has people like the readers here as it's intended victims.
The SEC is a ponzi scheme. Tell them to kiss off.
But wiser people realize *that's the point*: We DO blame the US Dollar for the damage done by Bernie Madoff.
With a currency that isn't based solely on delusion, and a system that doesn't allow to make money from nothing (with interest and debt) -- just to force its population into hamster wheels, to work themselves to death, in order to create that money and pointless obsessive growth -- something like this could never happen.
Because just putting your money somewhere, and magically getting back more money, would be completely impossible.
But it's not a Ponzi scheme unless Bitcoin is a currency.
If I took money to invest in *stocks* and then returned the (bigger) money minus his cut, then that's an investment.
If I took money and invested in *bitcoins* and then returned the (bigger) money minus his cut, then its an investment.
To be a Ponzi scheme, you have to assume Bitcoin *is* the currency. A Ponzi scheme requires that the scheme only work by paying out later investors from earlier investors capital, not that it was an investment that grew, so they're saying *Bitcoin* was *not* the thing invested in, it was the currency of the transaction.
Oh and they got a 1000% of their capital back if USD is the currency, or 71% of their capital back if Bitcoin is the currency, but that point is moot.
so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?
That's an incorrect conclusion. You would get into trouble if you sold your own securities in a fictitious company, sold bogus securities in a real company, and any number of frauds involving investments - all illegitimate securities. So, legitimacy has nothing to do with anything.
Also, 7% per week!? Didn't anyone think that was too good to be true?! In this days and age, I'd be careful about anything that promised 7% per year!
According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?
Right. But the scheme was denominated in BitCoins. You invest 1, next day you have 1.01 and so on. That's on top of the USD value of the BitCoins going up. Of course there was no way that this guy was getting 1% of his held BitCoins from thin air. This guy even started rumours about involvement in laundering drug money as a source of the 1%.
What kind of an idiot believes the unbelievable? I struggle with that too. The answer seems to be that there are a lot of people that will literally believe anything.
I cannot confirm that he is in custody, but I heard "they got him". Reading this article I am starting to doubt it. There is little doubt for anyone who knows the Pirate Savings and Trust (that's what it was called first) that it is a scam, a lot of people lost their money and this is almost certainly not a big stunt for Bitcoin publicity. (heh)
Restating the obvious since nineteen aught five.
700,000!? That's 66 million USD at current market prices.
That's one hell of a con.
What makes you so sure that they didn't do just that? Collect money whose value is increasing at 7%, pay out at 5%, pocket the difference. Sounds like a wonderful business model to me as long as you can find the marks to "invest". And 65M * 2/7 = $18.6M pocketed, even ignoring the effect of compound interest.
Lets see, the reality would be closer to:
1 year = 52 weeks
@5%/week = 1.05^52 = 12.64
@7%/week = 1.07^52 = 33.72
profit = $65M*(33.72 - 12.64)/33.72 = $65M*0.625 = $40.6M
Not bad for a dishonest year's "work"...
--- Most topics have many sides worth arguing, allow me to take one opposite you.
Yeah, we all knew it was a ponzi when it was running. No, really. Go read some of the old threads on the forums.
Some people were just happy to collect "earnings" while it was running. A few people even managed to cash out before it all went to shit.
Also, keep in mind that most of the losses reported by people were their account balances after a few months of compounded 7% per week "interest" (LOL). The actual losses were much lower.
See that "Preview" button?
If they had 500,000 bitcoins then those investors have a large percent of the market. Doesn't bitcoin max out around 20M bitcoins? Sure you can buy/sell using fractional bitcoin but if a small group of people are already hoarding several percent of the currency when hardly anyone is even using it yet, that doesn't look like a good future for it.
Madoff operated under their noses for years despite numerous warnings by competitors that his results were impossible and likely a fraud. Wall Street itself is a ponzi scheme.
For several years, one big financial firm after another cratered or had to be bailed out and all we heard from the SEC was crickets. And now they're on the warpath against bitcoin.
Wansu, th' chinese sailor
According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?
The guy was withdrawing the bitcoins to pay his rent. If he had actually left them in the account then the promised rate of return would have materialized although by happy coincidence than strategic investment.
Except they had to pay out in bitcoins, not dollars. If Bitcoins increased their value against the dollar, it made the 8% per week even more implausible.
Since there are no actual investments with legitimate earnings yields that are nominally denominated in bitcoin (or at least not enough to matter), any sort of banking scheme that offers interest denominated in bitcoin is either a scam or a pure short-play (bc to $, wait for price to drop, buy more bc). Welcome to full reserve banking, where the only legitimate banking charges you to hold your money.
Bitcoin purchasers are more gullible than the general population. This guy knew that, and the knowledge worked quite well for him.
Posting anonymously to preserve my Karma, since Bitcoin is quite fashionable here on Slashdot.
So if it works or near works it's still a Ponzi scheme really?
I am Bennett Haselton! I am Bennett Haselton!
There's not a whole load of interesting comments in this thread. You can easily say "Stupid people" but you don't learn much from that. Have a look at the details too.
Bitcoin has been a really interesting study in trust. Pirate managed to get away with what he did because people put a lot more trust in him than other people would. Pirate had a very good safe reputation before this and people had an idea of who he was.
The other thing that is interesting is that it could have been a pass-through to somebody else.
The next thing is that people were given info on how the profits were supposed to happen... I don't much about the scam but I think the cover story was supposed to be arbitrage on the dollar? In reality some think that his plan was to scare the market with some dumps... but it didn't pan out.
So, lessons to be learnt:
- you shouldn't judge trust by WHO but HOW. The distance of money between the trustee and you is key. Bitcoin of course made it seem very distant and therefore more tempting
- things happen gradually. You have a bank... then you realise you can get away with lending out a bit... then it's a bit more... and so on
- just because there's a real and plausible plan doesn't mean you won't be scammed
- just because someone has a good reputation isn't a great guide
- the value of the reputation:scam profit ratio is a better guide
A blog I run for the wealth
Amazing that so many people trusted "First Pirate Savings and Trust" with 700,000 of anything, be they pennies or $17-coins or $1-coins or $12-valued or whatever. They are certainly worth more now than they were. If he started returning the money today, it's arguable that he would have made a great deal for all of his customers by forcing them to hold onto the coins for a longer amount of time until the market rate had gone sufficiently high to make it worthwhile cashing out.
"First Pirate Savings and Trust" -- a name you know, a name you can believe in.
I know I kicked myself after every single time I cashed out bitcoins and afterwords the value went up by 6x or more.
Restating the obvious since nineteen aught five.
Yet you don't hear anyone complaining about that, do you?
The definition of a "ponzi" scheme is an investment that promises a return, where returns paid out today to yesterday's investors are funded by today's investors. That is precisely how Social Security works. Benefits paid today are funded by today's receipts.
I'm no fan of the Fibbies. Long story but I've seen them do some dirty shit, and more of their shit has gone public as well, but I can just see them, though more likely States' AG's, prosecuting a straight-forward fraud case here. The SEC, though? They don't and should not have any jurisdiction. We shouldn't even want them to, and I really doubt this guy had gone public.
I invested in a good lunch...but now I am afraid my investment has turned to poo! Did the cafeteria defraud me? Should I contact the SEC?
I only look human.
My mother is a halfling and my dad is an ogre, so that makes me an Ogreling
...it is still an unregistered bank, which is illegal in and of itself.
You can't escape regulation just by doing business with bitcoin instead of dollars.
Paypal manages to escape regulation by doing business with dollars instead of dollars.
According to the post the actual value of bitcoins has climbed at about 1% per day
Depends on when you bought. There was a run-up to 15 to 260 earlier this year, but it's been mostly downhill since then. Today, 87.
...welcome and embrace our new CYA overlords!
One explanation about why he was able to carry this out was undoubtedly the fact that BitCoin it'self acts like a gullibility filter, attracting those that are both gullible and greedy.
Banks and politics are also a combination of pozi/pyramid schemes. We have to realize it.
Casteism