

SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme - seansoutpost
https://www.sec.gov/servlet/Satellite/News/PressRelease/Detail/PressRelease/1370539730583#.Ue6yMI1WZ8F

======
sehrope
> The SEC alleges that Shavers promised investors up to 7 percent weekly
> interest based on BTCST’s Bitcoin market arbitrage activity, which
> supposedly included selling to individuals who wished to buy Bitcoin “off
> the radar” in quick fashion or large quantities

Anybody that is not skeptical about 7% _weekly_ returns on anything is just
asking for it. That's 33x your money in 1 year. How can that sound legit to
anybody?

> In reality, BTCST 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 BTCST investments.

Since the bitcoin ledger itself is public record anybody could analyze the
addresses associated with the fund and see the inflows and outflows[1]. Even
if new addresses are generated for each transaction at some point the fund
manager would need to roll them up and combine them. It would be possible to
see the ponzi flows in the ledger itself.

[1]: Assuming the fund manager isn't using some kind of bitcoin mixer. If he
is then that's probably a sign that something bad is going on.
[https://en.bitcoin.it/wiki/Mixing_service](https://en.bitcoin.it/wiki/Mixing_service)

~~~
makomk
> Anybody that is not skeptical about 7% weekly returns on anything is just
> asking for it. That's 33x your money in 1 year. How can that sound legit to
> anybody?

If you were following the Bitcoin forums at the height of the Ponzi, anyone
who suggested it was a Ponzi was called a troll who was libelling pirateat40
by what felt like half the forum. Everyone insisted that unless they had
actual proof it wasn't a genuine investment, they should shut up, and that the
only reason for them to make a big fuss about it was to . This comment was
about par for the course, and bear in mind this was _after the scheme
imploded_ :
[https://bitcointalk.org/index.php?topic=101377.0](https://bitcointalk.org/index.php?topic=101377.0)

A number of widely-respected members of the Bitcoin community supported the
Ponzi and even ran pass-through schemes for it.

~~~
astrodust
If you invest money with someone called "pirateat40" you get what you deserve.

~~~
atwebb
Well, he did learn from Buffett, just the wrong one.

------
biot
It's just like what happened in EVE Online[0], only with real-world
consequences instead of "that sucks, but player beware".

[0]: [http://www.tentonhammer.com/eve/news/eve-online-ponzi-
scheme...](http://www.tentonhammer.com/eve/news/eve-online-ponzi-scheme-
claims-over-1-trillion-isk-from-players)

~~~
nrivadeneira
I think this is actually a really interesting parallel. They're both virtual
currencies, but one carries actual legal risk and the other doesn't. The
question is, are they really all that different?

~~~
zaroth
EVE's "ISK" does carry legal risk as they are an operator of a centralized
virtual currency.

I think it's mostly a matter of FinCEN et. al. not yet training their sights
on ISK, because ISK is not widely supported in terms of fiat-exchange and
online purchases.

There's certainly no reason someone couldn't accept ISK on Silk Road in
exchange for their magic mushrooms, but the reality is, why take ISK when you
could take Bitcoin which has better tools/software for trading, better
liquidity, and no centralized control?

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noname123
How can the SEC regulate this? BTC is not a real currency but electronic
messages being sent back and forth and logged in an electronic ledger. Not a
legal tender currency or security registered or traded in a US-based exchange.

So apparently this is an SEC "Investor Alert," but do the legal minds here
know if SEC can indict and prosecute this guy? This is important for people
who are also running Bitcoin casinos, sports books and prediction markets.

~~~
rmah
The SEC can go after ponzi schemes because those are effectively investment
scams. Any ponzi scheme effectively issues IOU's (e.g. shares in a fund, debt
instruments or just verbal promises of future payment). These are the
securities involved and thus fall under the SEC's domain. The SEC regulates
securities and exchanges. Not just registered public securities and public
exchanges, ALL of them. And _they_ say what is a security or an exchange, not
you.

Gambling operations such as casinos and sports books are regulated by local,
state and federal law enforcement. At the federal level, I think it's the FBI.

On another point, you write, _" BTC is not a real currency but electronic
messages being sent back and forth and logged in an electronic ledger"_. Most
money is exactly that: entries in electronic ledgers and most money transfers
are just electronic messages. You don't really think that banks reconcile
transfers with big piles of $100 notes, do you?

------
mindslight
This is yet another step on the path of Bitcoin exposing that it is not the
operational-semantics/capability/irreversibility based cryptocurrency many
people wishfully thought that it was. The POW-based solution to the Byzantine
agreement problem was quite novel. It's unfortunate that this novelty was
wasted on the same old title-based accounting rather than something more
appropriate for a fungible commodity.

A system based on accounts with default linkability invites all the tired old
thinking that plagues our modern transactions - fraud, taxes,
involuntary/post-facto regulation, etc. In this instance, the status-quo
masses, having developed an interest in Bitcoin, will be reading this comment
and thinking 'but of course the SEC should pursue fraud', because it fits
their pattern of how the world works - it feels like someone has been wronged,
so the big man with the big stick comes and sets things right. The underlying
idea of irreversible transactions and "it _is_ how it _works_ " won't enter
their world view. And these status-quo infusions of ambient authority will
encourage additional ones until the novel autonomy-attempting properties of
Bitcoin have been completely mitigated.

I just hope adequate electronic currencies don't end up stillborn due to the
Bitcoin vaccine.

~~~
modeless
This is good news, all things considered. A digital currency truly out of
reach of regulators would just be outlawed. Exchanges would be raided and shut
down. If regulators feel comfortable with bitcoin, it can grow and thrive for
now. Then, when someone invents a truly anonymous currency, call it A-coin,
bitcoin will be a stepping stone to it. Here's how it could work:

You will buy bitcoins at regulated, fully legal and non-anonymous exchanges.
Then, you will exchange bitcoins for A-coins at anonymous, online-only
exchanges. Since they can operate only on digital currency they need no
physical presence and no connection to the regulated global financial system
and will thus not be vulnerable to government regulation or control.

~~~
mindslight
Except the exchanges will be heavily regulated and required to record your
identity, and converting them to A-coins will be illegal. Even if enforcement
is spotty, one can't take the process for granted and the common view will be
that A-coins are for criminals. Primarily functioning as a temporary medium of
exchange for identity-based systems means it's only a matter of time until the
ambient authority infects the system through the exchanges, imposes changes to
conform to its view of the world, and demands respect as middle man and final
arbiter. The only way to create an anonymous digital currency is to
concurrently develop the anonymous digital economy.

~~~
modeless
Even if the government made conversion to A-coins illegal, they couldn't
really stop it because they wouldn't be able to shut down the exchanges. It
would be the same as P2P filesharing. It's technically illegal, and people do
get identified and arrested, but that doesn't stop it. There are just too many
people doing it, and there's no popular support for a crusade against
filesharers.

------
PublicEnemy111
This guy is rumored to be Dread Pirate Roberts, the administrator of silk road

~~~
runn1ng
Now _that_ is an interesting speculation.

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cmdkeen
Intriguingly this is also very similar to the original scheme by Charles Ponzi
in that it purported to make its money from arbitrage opportunities.

It's amazing how people will suspend their disbelief when the chance for a
"too good to be true" return exists. In the original scheme the US Post Office
put out a statement saying that whilst arbitration was possible the amounts
allegedly being invested were simply not possible the in the market.

Given there are estimates of daily bitcoin volume the same principle applies -
you could only carry out such profitable arbitrage on a very small scale, not
the much higher scale the scheme claimed.

------
Everlag
7% WEEKLY INTEREST and people thought it was legit. You'd be damn lucky to
find a reliable place that'll get you 5% annually. I'm not condoning what the
fellow did but really people, if you got taken by those kind of numbers
without second thought you need to take a look at other areas of investment.

------
MichaelGG
Why did he get caught? Looks like plain greed. If had been careful, used Tor,
and kept the money in Bitcoin, then carefully withdrew over a long time period
he'd have gotten away with it.

~~~
dobbsbob
He met people in vegas, promised them a bunch of fairy tales to their faces
and then scammed them. They knew his name, Tor wont help you there. I have no
idea why he didn't flee somewhere though, probably doesn't have any money left
most ponzi operators when they go bust have nothing to show for it.

------
dobbsbob
Lol they finally got Pirateat40. Not like I "invested" with his obvious
ponzi/laundering scheme but kind of surprised he didn't flee to Brazil
already.

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mtgx
I'm not arguing over what they're doing, the guy was asking for it, but it
seems someone at a high level asked for more regulation and attention on the
Bitcoin ecosystem.

~~~
sneak
As was demonstrated, Ponzi schemes are already illegal, regardless of
denomination.

No new laws or regulations required.

99% of the time in the USA, blatant fuckery is already illegal six ways from
Sunday. The last thing we need are more laws.

~~~
forrestthewoods
Are they? What about in video games? Eve Online had a gigantic ponzi scheme
where players stole vast amounts of in-game currency. Is that illegal? I'm not
being snarky, I genuinely don't understand when it is and is not illegal.

~~~
wmf
AFAIK EVE has a TOS saying that everything that happens in the game is
fictional and that ISK is not real money. Essentially all players have waived
their right to complain, although it might be possible for a court to overrule
that.

I think plenty of Bitcoiners were trying to have it both ways, telling the IRS
and SEC that Bitcoin is not real money while cashing out their schemes on
MtGox at the same time. As with any license to steal, this was too good to be
true.

~~~
forrestthewoods
But there are plenty of black market sites where you can convert video game
currency to and from cash. It's an extra step, but it's trivial to do. There
are even sites that aggregate video game black markets and show the best
conversion rates and most trusted services.

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LekkoscPiwa
and who is to charge the ones responsible for social security ponzie scheme.
Not to mention monetary (QE) ponzie schemes of all sorts?

