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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."
No, it means investing in them is slightly dumber than we all knew it was yesterday.
so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?
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.
Actually, in this case it means quite the opposite; investing your bitcoins in something (a scam in particular) is worse than investing _in_ bitcoins.
If the investors had merely been sitting on their bitcoins they would have gotten the returns he promised (although in dollar value).
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No, it means investing in them is slightly dumber than we all knew it was yesterday.
No, it means investing in bitcoin-denominated ponzi schemes is dumb, running ponzi schemes is illegal and keeping their saving in bitcoins would be good idea for people scammed by pirate40.
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No, it means investing in them is slightly dumber than we all knew it was yesterday.
Every time I read these stories I wonder if I'm doing the right thing by not investing in the continued stupidity of other people. It seems a more reliable investment than any others I've made recently.
No sig today...
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.
This really has nothing to do with bitcoin itself, and is just someone trying to use them to scam people. Nothing new here.
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
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?
Never underestimate the power of greed to suspend normal thinking processes.
Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
Doesn't this mean bitcoin is now illegal?
No, it means that bitcoins are just like real money! You can commit real financial fraud with them.
Which is exactly why I don't try to invest in the stupidity of others. I'm smart enough to realize that I'm dumb enough to end up on the wrong side.
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
No kidding!!! What do you say at this point?
This really has nothing to do with bitcoin itself, and is just someone trying to use them to scam people. Nothing new here.
The reason it's a big deal is that he wasn't just trying to scam people, he was actually very successful at scamming people. If he just tried and failed no-one would care.
I saw give him a fair trail and if found guilty lock him up with a bunch of violent offenders for very many years.
FLEE TO MEXICO
Build private compound
Employ armed guards
Enjoy
If you chose Belize, you could pick up a pre-built compound, and some currently unemployed, (but experienced), guards.
I know how trollish this is going to sound, but it's consistent with my observations. This was a demonstration of just how well libertarian investors do in a (mostly) unregulated environment.
Every time I read these stories I wonder if I'm doing the right thing by not investing in the continued stupidity of other people. It seems a more reliable investment than any others I've made recently.
Unfortunately, virtually every practical means of investing in stupidity break the law; and the ones that don't (the lottery, for example), the government itself runs.
If you can find a new way they haven't yet banned to extract money from the stupid (eg. "payday loans", but those look near the end of their glory days), you will find yourself very, very wealthy.
If I were a scammer I'd be seeking out people who have a higher concentration of gullible people within their ranks than the general population - churchgoers, libertarians etc. I think bitcoin users represent easy pickings and more so because the distributed and unregulated nature of bitcoins makes it easier to collect "investments" and easier to disappear afterwards.
If you think Wall Street is a ponzi scheme, you've defined the term so vaguely as to be meaningless.
Just say "I don't like bankers! Yucky!" if that's what you're getting at.
Slashdot: providing anti-social weirdos a soapbox, since 1997.
The usual breakdown for gold use is 50% jewelry, 10% industry, and 40% hoarding -- sorry, I meant "an investment vehicle to hedge against inflation". When the hoarding percentage goes above 50% or so, there's a sudden crash in gold prices, unsurprisingly.
Actually, in this case it means quite the opposite; investing your bitcoins in something (a scam in particular) is worse than investing _in_ bitcoins.
If the investors had merely been sitting on their bitcoins they would have gotten the returns he promised (although in dollar value).
Apparently, trusting your money to someone whose username begins with "pirate" is a good way to get your savings keelhauled.
Yarr!
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I assumed 'pirateat40' is a reference to Jimmy Buffett "A Pirate Looks At 40". The line "Made enough money to buy Miami, but I pissed it away so fast" probably applies to Shavers.
Yet investing in something that *depends* on the stupidity of others is probably a good strategy.
"No one ever went broke underestimating the intelligence of the American public." -- Henry Mencken
If you take 10% from each exchange the value will never reach zero (Zeno's paradox). Regardless, a Ponzi scheme extracts no value from the original capital. There's no arbitrage. It's a zero-sum game. That's what distinguishes it from markets, which are supposed to be about finding areas where someone has under- or over-valued something relative to its actual value, and extracting that difference.
No kidding!!! What do you say at this point?
No, but those few seconds are being taken away from the time they could have spend on something else. If you will try to argue that it makes no difference if a smart person is going to spend say eight hours on a task or eight hours minus a couple of seconds, then you would be wrong.
I agree one smart person is unlikely to achieve anything great in a couple of seconds. But they could achieve something in eight hours. Could they have achieved the same in eight hours minurs a couple of seconds? There is a good chance they could. But if you keep subtracting a couple of seconds at a time, you will eventually cross a boundary where that something could no longer have been achieved.
It may be that for the majority of those people, the lost couple of seconds didn't make a difference. But for a small fraction of them it just happened by chance that those was the exact couple of seconds which made the difference between achieving something or not achieving it. Spreading the lost productivity over lots of people does not reduce the impact, it just makes it harder to measure.
Do you care about the security of your wireless mouse?
Gold is and always will be a solid hedge against inflation.
Actually, gold is a pretty poor hedge - as with any commodity, it is very volatile and it's long term returns are not that great. For example, $100 invested on gold in 1965 would be worth around $4000 in 2012 vs about $6000 for the same investment in the S&P 500. Gold touts play on people's fears and their belief that others will continue to share those fears to drive up the price; when in reality gold is a basic commodity and behaves as such. It even has a limited upside because as prices rise uneconomic means of production become viable; and there is a lot more gold that has not been recovered than there is demand.
Of course, it doesn't hurt that you tossed in "Fox News" to get all your liberal friends panties in a wad. And when Obama's monetary policy lead to rampant inflation ... well you will not look so smart.
Actually the Fed sets monetary policy and it is notorious for doing things that piss off presidents; to the point of being accused of acting to influence elections. Of course, you use "Obama" the same way as others use "Fox."
I'm a consultant - I convert gibberish into cash-flow.
I don't agree. He is a threat to society. He stole a large amount of money and should face a fair trail and a prison sentence if he is found guilty. Fraudsters should be locked up both to prevent them commiting crime again for a few years and as a clear warning to anyone else who would commit fraud. The stupidity of his victims is no excuse for his actions.