A man has been sentenced to 18 months in jail after running a fraudulent scheme based on Bitcoin. The man – Trendon Shavers promised high returns to those who backed Bitcoin-related investments.
However, the guy took advantage of people’s faith by not investing the cash, but using it to pay early investors in the scheme and to amass bitcoins.
Investors who backed the scheme lost about $1.23m in total, said Shavers’ lawyers. Shavers has been ordered by the court to repay the money which investors lost.
Tech stakeholders believe Bitcoin is a revolution that will change the financial sector across the world because most people can access the internet. But as the system grows, fraudulent schemes will sprout in every corner.
The Ponzi scheme
In 2014, Shavers was arrested for running the scheme which used to about 764,000 bitcoins. In 2011-12, when the scheme was operating, this was worth approximately $4.5m, comprising of 7% of all bitcoins in circulation.
According to BBC, Investors were attracted by Shavers offering them the chance to earn 7% interest every week. He said the returns to fund these rewards would be generated when he traded bitcoins across different exchanges.
Only a fraction of the bitcoins bought were invested and the rest were used to pay back those who were first to join the scheme. In addition, court papers revealed, Shavers used more than $220,000 of the cash to buy a BMW, holiday in Las Vegas and cover family expenses.
“I don’t think this is something I’m ever going to get over but I’m going to try to make things right,” said Shavers in court, telling the judge that he “royally messed up”.
According to US laws, Shavers would spend three years in jail but the judge reduced the sentence because of the “honest work” the Texan has done since his arrest. Shavers now makes his living as a cook.
Shavers is currently the first person to face federal securities fraud charges involving bitcoins.