A Texas man has been charged in what appears to be one of the first ponzi schemes involving a bitcoin- or digital currency.
Trendon Shavers of McKinney, Tx., was charged Tuesday with hosting a ponzi scheme that involved over 700,000 Bitcoins. The Securities and Exchange Commission charges that McKinney collected more than $4.6 million worth of Bitcoin from investors over a one-year period, promising a 7 percent return. But instead of investing the money, Shavers was using funds from new investors to pay off old ones.
Today's value of 700,000 Bitcoin is estimated to be worth more than $60 million according to the SEC. The scheme varies from others in that Shavers was promising interest instead of profit.
"In reality, [Bitcoin Savings and Trust] was a sham and a Ponzi scheme in which Shavers used bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding" investments, the SEC alleged.
Shavers is the founder and operator of Bitcoin Savings and Trust, the company through which he operated the scheme. Complaints filed in U.S. District Court for the Eastern District of Texas, alleged he sold investments to investors in several states.
An SEC spokesperson told CNN Money that the alleged Bitcoin ponzi scheme was the first of its kind. He warned that cases involving Bitcoins would not be treated any differently.
"Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities laws," Andrew Calamari, director of the SEC's New York office, said in a statement.
An unnamed person, known only by the pseudonym Satoshi Nakamoto, launched the Bitcoin in 2009. At its beginnings, it was valued at $20. In February of this year, the Bitcoin hit its all time high in the market, reaching $250. The coin's value however, is drastically inconsistent.