Bitcoin Savings and Trust fraudster fined $40 million

In July of 2013, the Securities and Exchange Commission (SEC) charged Trendon T. Shavers with defrauding investors in a bitcoin-targeted Ponzi scheme. Shavers claimed to have created a bitcoin-based arbitrage system, the Bitcoin Savings and Trust (BTCST), and promised investors 7% interest per week on their BTC loans. Instead, the BTCST was a classic Ponzi scheme, using new investments to pay out the “interest payments” of earlier investors, cashing out millions to himself in the process. All told, Shavers duped investors out of 700,000 BTC, worth around $64 million at the time of his arrest and around $276 million today. In terms of scale, Shavers’ scam was actually bigger than the Mt.Gox heist.

On Thursday, U.S. Magistrate Judge Amos Mazzant came down hard on Shavers, awarding $40.7 million in damages to his victims. Mazzant said in the ruling: “The uncontested summary judgment evidence establishes that Shavers knowingly and intentionally operated BTCST as a sham and a Ponzi scheme, repeatedly making misrepresentations to BTCST investors and potential investors concerning the use of their bitcoins, how he would generate the promised returns, and the safety of the investments.”

Mazzant’s ruling puts Shavers on the hook for $38.6 million in illegal profits and $1.8 million more in interest. Shavers and his collaborators were also fined $150,000 each. The status of Shavers’ finances, either in cash or BTC, has yet to be reported, and it’s not known if any of the defendants have a reasonable chance of seeing the debt settled.

Although often overlooked by many in the bitcoin world, Shavers’ case was arguably the first major interaction between the digital currency world and the government. It was Shavers’ scam that first brought bitcoin to the attention of regulators, who almost immediately began issuing warnings about this strange new “internet money” and the potential for its use in scams. The Silk Road may have captured the headlines, but it was the BTCST case that first put bitcoin in the crosshairs of the authorities.