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Thread: Bitcoin Ponzi Scheme Perpetrator Fined $40 Million

  1. #1
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    Bitcoin Ponzi Scheme Perpetrator Fined $40 Million

    CoinDesk is today reporting:

    Texas man charged with defrauding consumers through an illicit investment vehicle has been ordered to pay more than $40m in fines by a federal judge.
    The Thursday ruling brought to close a case launched last July that drew headlines at a time when many in the mainstream US media were only first learning about bitcoin and its related technology.

    Trendon Shavers, the founder and operator of Bitcoin Savings and Trust (BTCST) had reportedly accrued more than 700,000 BTC in customer funds, worth roughly $64m at the time of his arrest.

    US Magistrate Judge Amos Mazzant wrote:

    “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.”
    Notably, many subsequent government warnings by US regulators, both on the state and local levels, cautioned against bitcoin’s potential use in Ponzi schemes.

    Nonetheless, Shavers’ actions were widely denounced in the community, including the Bitcoin Foundation‘s general counsel Patrick Murck.

    Legal findings

    Judge Mazzant found that Shavers violated securities laws by selling fraudulent bitcoin investments to consumers and using the funds of new investors to reimburse older investors.

    Shavers, who was not represented by a lawyer during the trial, countered these allegations by arguing that BTCST was not subject to US securities laws that prohibit Ponzi schemes, due to the fact that bitcoin is not considered money under federal law.

    Judge Mazzant ruled differently, ultimately determining that investments made to BTCST met all the requrements of investment secuities and therefore were subject to their related laws.

    Shavers was eventually charged with violating anti-fraud and securities laws in a complaint filed in the US District Court Eastern District of Texas.

    Calculating the damages

    Perhaps most notable were the methods the US court used to calculate the damages in the case, given that the price of bitcoin is prone to fluctuations.

    The fine was determined based on the average daily price of bitcoin on 26th August, 2012 when the scheme was uncovered, and includes $38.6m in profits BTCST earned fraudulently, associated interest of $1.8m as well as a $150,000 civil fine awarded to Shavers.

    At a press time price of $399.02, the 700,000 BTC Shavers earned from investors is worth roughly $279m.
    The only thing necessary for the triumph of evil is for good men to do nothing

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    Re: Bitcoin Ponzi Scheme Perpetrator Fined $40 Million

    The only thing necessary for the triumph of evil is for good men to do nothing

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    Re: Bitcoin Ponzi Scheme Perpetrator Fined $40 Million

    Not the first and not the last.
    Bitcoin showed how entire media is dumb.
    Some respected media outlets openly pimped BitCoin ponzis.

    Remember this? : “Taming the bubble”: investors bet on Bitcoin via derivatives markets | Ars Technica

    Quote Originally Posted by Ars Technica
    The Maltese Falcon, aka, the Bitcoin Fund

    These new ventures and derivative markets have a variety of names, including Exante’s Bitcoin Fund,, and even TorBroker, a Silk Road-style “hidden website” that requires Tor to make stock trades.

    Exante is likely the most bona fide of these operations as it is an official, licensed, Malta-based brokerage company with a real office, real employees, and the power of European Union regulators behind it. Earlier this year, its “Bitcoin Fund” became the world’s first bitcoin-based hedge fund and is based in Bermuda, a notorious offshore tax haven.
    A Standard HYIP pitch :) Malta does not regulate/monitor/audit anything, just giving stupid licenses for a fee.
    Real office ? Did you at least check how many other companies are at the same Maltese address.

    Quote Originally Posted by Ars Technica

    “Similar to Exchange Traded Funds, the Bitcoin Fund objective is to purchase and store BTC; 1 Bitcoin Fund Unit = 1 BTC,” the site states. “The investment objective of the Fund is to achieve capital gains in the Net Asset Value of the Fund Shares. The fund currently manages a portfolio of 81,000 BTC and has achieved a phenomenal +1000% return in its short 3-month history.”

    Reached by phone in Singapore, Anatoliy Knyazev told Ars that the “Bitcoin Fund” was a “nice addition” to the mix of existing funds and other financial transactions that the company offers. Americans, due to existing regulations, can’t invest in the Bitcoin Fund just yet, but a “feeder fund” is set to be ready in a few months.

    “We have alternative funds that invest in wine, real estate,” he said. “Bitcoin as a share of our business is growing but it's [still small.] We have 82,000 BTC in the fund—today that’s almost $20 million. To compare it with the rest of our business it might be trickier. Our hedge fund market is about $2 billion. What's important is the amount of return that we get from Bitcoin. In January we had subscriptions, we tried pitching Bitcoin last summer and autumn with mixed results. After the price appreciation in January from 10 to 20 [dollars per bitcoin] we were overwhelmed with people wanting to get in.”

    Knyazev added that his investors were other hedge funds and “high net-worth individuals.”

    “Let’s say you invest $1 million, and from that we purchase bitcoins. You're issued the fund shares, so you get 100 shares. After that we take custody of them, geographically distributed, cryptographically secured. The encrypted flash drive copies [of the Bitcoin wallet itself] are kept in bank safes [in Moscow, Singapore and Switzerland.]”

    Shorting bitcoin

    But while Exante may be the best example of what’s out there in terms of bitcoin-based investments, there’s also some pretty sketchy stuff too.

    Alex Stukalov is one of the “roughly four people” behind, a Russia-based site, who operates under the shared handle “fireball.” ICBIT has been in operation since November 2011, boasting 5,000 registered users, with “around 100” online at any given time.

    Stukalov, who spoke to Ars via Skype text chat, said that a well-known Bitcoin user in Vietnam named named “Tycho” (who has also been publicly accused of “cheating” the entire Bitcoin network) receives some of the revenue from the site and acts as a consultant. He claims that in six months, the team has taken in roughly 2,000 BTC in revenue (approximately $300,000 at $150 per bitcoin). But, he says, all that money has been put straight back into the company.

    “The profit inflow is not really that stable. Even more, we put all money currently taken from fees into the so-called ‘reserve fund,’ which should cover exchange from default,” Stukalov said. “And currently, during recent rate volatility, that reserve fund was heavily exhausted.”

    “The best statistics [are] the total volume and open interest (quantity of contracts currently bought/sold). So, counting in dollars (1 contract = $10), total volume for all three contracts for the recent three months is $1.4 million.”

    ICBIT is one of the few places on the Internet where investors can engage in a futures market, effectively betting on the upcoming exchange rate from bitcoins to dollars. On its site, it also says: "ICBIT currently is in process of incorporating in an offshore jurisdiction. If you are a lawyer willing to help us - please let us know, we need your help."

    Ars spoke to three traders on the site on Thursday afternoon, who identified as a Dutch business student, a Los Angeles-based IT manager, and a French scientist who recently finished his doctorate in bioinformatics and was headed to a new job in Brazil in a few months.

    Simon Gorter, the Dutchman who goes by the online handle “chipsticky,” told Ars that he had only bought 0.6 BTC “a few days ago” and used it to “short a position,” effectively betting that fraction-of-a-bitcoin’s exchange rate would go down. In just a few days, he claims to have tripled his money to 1.8 BTC, currently worth roughly under $300.

    “I’m still a student,” he added “I do online poker as well, but just got interested in this Bitcoin hype and looked at the charts and realized how crazy it was. Sure, I’m trying to profit, but just for small money. It’s more like a game for me, to see if I am right about the market.”

    When asked if he was “long” on bitcoin—believing that its value will increase over time—he had a decided answer.

    “I’ve thought about it a lot last few days, and I came to the decision that its a bubble that will burst,” the University of Groningen business student said. “The question is, how high can it go before it does? I think there is a good chance it already did and will drop even further. Another possibility is that the mainstream media has brought a lot of interested people willing to buy a few coins which could cause another boom going way higher than the last high before the bubble will burst.”

    The Los Angeles-based trader, who goes by the online handle “bV” openly accused Stukalov and the others behind the site of “manipulating” the future price in the middle of a given futures contract.

    “I figure my only recourse is to just going to keep buying until I run bust and stick the exchange with the debt,” he said, noting that in the worst-case scenario, he would lose his original investment of $1,000. “Since I can't get my money out, I can at least bet on a quick recovery!”

    Stukalov dismissed such allegations, saying that they followed norms for futures markets.

    “We do stuff the right way,” he said. “We have several people with background in finances and stock market trading participating in ICBIT development, we know how to do it really properly, not amateurish. And we stick to what we say (it's even obvious from the ratio: there are about three upset people now, out of 5,000 registered, and around 3,000 trading)”

    But, ICBIT has no listed legal address, nor a listed mechanism through which to adjudicate disputes. Plus, it wouldn't be hard to imagine a scenario where someone shorts Bitcoin, then launches a distributed denial of service attack on Mt. Gox or another exchange, causing chaos in the market, and likely, profiting.
    Good luck suckers getting your coins back from such hedge fund :)

    Will you go to Bermuda (where fund claims is residing), Malta (who gave them a stupid license), Sweden (exchnage's TLD), Russia (where exchange site is), Singapore (where admins have phone #) ?
    Or to those hacker–traders in Vietnam,Netherlands, LA, etc to find your coins?

    Great one, Ars Technica, you are either idiots or ponzi pimps (pick one or both).

    Quote from BitCoinTalk: "So the Exante Bitcoin Fund claims 1000% return in the last 3 months."


    Last edited by NikSam; 11-07-2014 at 05:42 AM.


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