Bitcoin: $4.5 million fraud committed by a “Bernard Madoff” of the virtual currency

BitcoinU.S. Securities and Exchange Commission  (SEC) sued a “Bernard Madoff” of the virtual currency Bitcoin, Trendon T. Shavers, for allegedly cheating 66 investors with $4.5 million in a pyramid scheme.

The so-called investors are from Connecticut, Hawaii, Illinois, Louisiana, Massachusetts, North Carolina and Pennsylvania, according to MarketWatch.

Shavers, aged 30, is a native of McKinney, Texas, dubbed the “Bitcoin Bernie Madoff,” the founder of “Bitcoin Savings and Trust,” (BTCST) raised a total of 700,000 Bitcoins in 2011 and 2012.

According to the SEC, Shavers deceived investors of Bitcoin currency by $4.5 million, diverting some of the funds raised to himself. He sold virtual coins to pay for the rent, car expenses, meals, shopping and entertainment at the casino.

“In reality BTCST was a sham and a Ponzi [pyramid] scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on existing BTCST investments,” said SEC earlier this week. According to SEC, Shavers transferred 150,649 Bitcoins into his personal account.

He announced in November 2011 that he was closing the fund: “As the fund grew there were larger and larger coin movements which put strain on my reserve accounts and ultimately caused delays on withdraws and the inability to fund orders within my system.”

Bitcoin virtual currency was launched by Satoshi Nakamoto in 2009, for use in peer-to-peer electronic payments. Satoshi Nakamoto is a pseudonym for a person or group of persons whose identity is not public. He designed in 2008 the Bitcoin protocol and released the open-source software in 2009.

The value of the Bitcoin currency was last year just under $5, but in April reached a peak of $266. Currently Bitcoin currency is worth about $97, and some analysts believe that it is moving toward zero.

Shavers promised people that their investment in Bitcoin will increase by 7% per week by means of the Bitcoin arbitration services that he offers. His company, Bitcoin Savings & Trust, was originally called “First Pirate Savings & Trust.”