You would think that alarm bells would go off if you were offered an investment which would deliver gains up up to 7% a week. Yet there were plenty of people more than willing to sign up to the Bitcoin 'hedge fund' Bitcoin Savings & Trust (BS&T), whose operator Trendon Shavers recently pleaded not guilty to fraud charges in a New York District court.
If convicted, Shavers faces up to 40 years in prison, as well as millions of dollars in potential fines and penalties. Shavers is charged with one count of securities fraud and one count of wire fraud.
A second trial
The prosecution alleges that Shavers promised outsized returns to investors, but in reality operated a Ponzi scheme by paying early investors with the proceeds from new ones. Shavers, who worked under the username “pirateat40”, solicited investors for BS&T during 2011 and 2012.
Shavers was found guilty of securities violations last September, when he was ordered to pay $40 million in fines.
He was then arrested again in November in connection with new charges filed by the US Attorney’s Office in Manhattan.
Invest in legitimate firms through a Stocks & Shares ISA
Almost half lost money
[SPOTLIGHT]The indictment stated that many of those who Shavers solicited ultimately lost their money, noting: “In the end, at least 48 of approximately 100 investors lost all or part of their investment in BS&T. At the peak of his scheme, Shavers raised and had in his possession about 7% of the Bitcoin that was in public circulation at the time.”
The US Attorney’s Office case against Shavers, who raised more than 764,000 Bitcoin (worth about £140 million) from investors, contends he used both emails and face-to-face events to solicit investors.
According to the indictment, Shaver “misled investors by stating that hedge funds were involved with the company and that it was not a Ponzi scheme. He took advantage of client ignorance of both cyber-currencies and of hedge funds, instead focusing on their alleged ability to make huge amounts of money without risk”.
Shavers allegedly took client funds for personal use, spending the cash on gambling, travel and general living expenses.
Shavers shut down BS&T in August 2012 following investor disquiet. At the time he said this was because of the time needed to manage the transactions for such a large fund, which had resulted in delays on withdrawals and the inability to fund orders within the system.
Irrespective of the latest trial's outcome, the idea of an investment that grows at 7% a week – that's doubling your money in 10 weeks and around a twelve-fold gain in a year – is far fetched. If you ever have a sharp-tongued salesman promising you astronomical returns like this, don't be fooled. If it sounds too good to be true, it generally is!
Invest in legitimate firms through a Stocks & Shares ISA