from Hacker News

SEC Charges Texas Man With Running Bitcoin-Denominated Ponzi Scheme

by seansoutpost on 7/23/13, 5:15 PM with 57 comments

• by sehrope on 7/23/13, 5:52 PM

  > 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

• by biot on 7/23/13, 6:23 PM

  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...

• by noname123 on 7/23/13, 8:59 PM

  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.

• by mindslight on 7/23/13, 8:24 PM

  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.

• by PublicEnemy111 on 7/23/13, 7:20 PM

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

• by cmdkeen on 7/23/13, 8:47 PM

  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.

• by Everlag on 7/23/13, 9:06 PM

  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.

• by MichaelGG on 7/23/13, 6:44 PM

  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.

• by dobbsbob on 7/23/13, 5:48 PM

  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.

• by mtgx on 7/23/13, 6:16 PM

  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.

• by LekkoscPiwa on 7/23/13, 6:56 PM

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