The Man Behind Bitcoin's $4.5 Million Ponzi Scheme Earns Lenient Sentence

Trendon Shavers lamented how he “royally messed up.”
July 25, 2016, 9:00am
Image: Flickr/houstondwiPhotos mp.

Trendon Shavers, a 33 year old Texas man, was sentenced by Manhattan federal court by Judge Lewis A. Kaplan for his "High Yield Investment Program" called Bitcoin Savings & Trust. In addition to the prison sentence, the judge also ordered him to repay $1.23 million to 48 investors.

Judge Kaplan said Shavers, who went by Pirateat40 and advertised on the popular forum, committed a serious crime but earned leniency through honest work to rectify his wrongdoing since his 2014 arrest. Shavers faced 40 years in prison, due to one count of wire fraud, before a September 2015 plea deal lowered the maximum possible sentence to 41 months.

Shavers offered investors a 7 percent weekly return on their bitcoin deposits in his scheme initially dubbed First Pirate Savings & Trust. Shavers disappeared in August 2012 after claiming the fund was too large for him to manage.

Authorities accused Shavers of receiving funds from new customers to pay out earlier customers, while sending funds to his personal bank, Dwolla, and Paypal accounts, as well as pre-paid credit cards.

Court documents demonstrate Shavers used $220,000 in bitcoins and money from investors to pay for his rent, car payments, groceries and family expenses.

"Applying a modern spin to an age-old fraud, Trendon Shavers used a bitcoin business to run a classic Ponzi scheme," said the prosecutor, U.S. attorney Preet Bharara.

Judge Kaplan said Shavers carried out a "classic Ponzi scheme" by offering potential investors high returns to turn over their bitcoins, the cryptocurrency designed by Satoshi Nakamoto and released in 2008. According to authorities, Shavers possessed about 7 percent of all bitcoins in public circulation at the peak of the scheme.

According to Reuters, Shavers lamented to Judge Kaplan how he "royally messed up."

He added: "I don't think this is something I'll ever fully be able to get over, but I'm going to try to make things right."

Jason Seibert, a Bitcoin and securities lawyer who represented Shavers at no cost during the SEC civil action, claims that Shavers emptied his wallet—"transaction after transaction"—and attempted to pay back the people he had defrauded.

Seibert notes how smaller lenders in the scheme may not have received restitution from from third party resellers of Shaver's ponzi scheme. These resellers would receive bitcoins from individuals, then send some of them to Shavers. When Shavers paid restitution, these middlemen did not forward it on to the people whose bitcoins they had sent to Shavers.

Seibert said Shavers feels "terrible" about that. The SEC did not initially evoke the payments in their case against Shavers.

"That didn't fit their narrative, nor could they have frozen Shaver's assets if they had revealed the truth when they sought relief," Seibert said, referencing Shaver's attempts to pay restitution.

Bitcoin advocacy websites mostly ignore Shaver's attempts to make things right. "It makes sense that the community would turn against him," Seibert said. "I just hope one day they know the truth - that Trendon has tried to make things right."