With the growing popularity of bitcoins, the platform is not only used for online payment and peer to peer transaction. Bitcoins are even now offered as investments. But many experts are concerned with the security of using bitcoins for such purpose especially since it is prone to frauds and other kinds of abuse. And just recently, another incident made headlines when the federal court already released its ruling on the case of Trendon Shaver.

In the ruling against the accused founder of Bitcoin Savings and Trust, Shavers was ordered to pay fines amounting to more than $40 million. The federal judge already made its ruling in light of the defrauding incident where the operator of BTCST accrued 700,000BTC which is equivalent to about $64M. At current prices, the said investments earned Shavers worth more than $279 million.

Quoted from US Magistrate Judge Amos Mazzant:

“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.”

The Ponzi Scheme

The court findings show that Shavers sell illicit bitcoin investments to customers. The funds acquired from new investors were then used to pay for the old investors.

During the trial, Shavers used to his defense that he did not violate any securities law as the federal law does not consider bitcoin as money. Despite his defense, the judge ruled in favor of the victims stating that all of the investments fell under federal laws as they met the requirements of investment securities.

Calculation of Damages

Considering that bitcoins have price swings and has fluctuations, it is quite a challenge when it comes to the methods that the court used in order to compute or calculate the damages.

The court based their calculations by using the average daily price of bitcoin on the same date that the scheme got discovered (August 26, 2012). The calculations also include the profit earned by BTCST amounting to $38.6M and also the interest amounting to $1.8M. In addition to these, Shavers had to shoulder a civil fine amounting to $150,000.

Reaction of the Bitcoin Community

A few months back, two traders also faced charges for illegal money transmitting connected to the black market- Silk Road. The bitcoin community condemned such illegal activities. And although bitcoin has its share of security flaws, these cases are still considered to be isolated cases. Just like traditional money and investments, bitcoins can also be misused and abused.  But with proper handling and regulation, it can offer a lot of benefits to consumers, companies and investors. Many experts believe that in time there will be a pressing need to come up with regulatory measures and policies to ensure that the interest and welfare of consumers are protected.

In lieu of the fraudulent incidents, the government warns the public to be more cautious since their bitcoins can be used for such scheme.


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