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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."
You think the SEC cares if it is a legitimate security?
The funny thing is that even if it is not a ponzi scheme, 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.
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).
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.
Comment removed based on user account deletion
The SEC does *not* regulate currencies. It does, however, regulate investment companies, with the protection of the public in mind.
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
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.
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 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.
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.