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back to article Texas man charged in multimillion-dollar Bitcoin Ponzi scheme

The US Securities and Exchange Commission has issued a warning about the potential dangers of investing in virtual currencies, after a Texas man allegedly managed to bilk residents of multiple states out of Bitcoins worth more than $60m at today's exchange rate. On Tuesday, the SEC announced that it has charged Trendon Shavers …

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yep

Pretty obvious the US government despite its objections and sabre rattling considers Bitcoin like any other currency. Which it may well be for another decade or two but that whole bitcoins disappearing over time will come back to haunt the currency long term imho despite all the fancy arguments to the contrary. Just my .0000000002 bitcoins.

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Meh

Re: yep

Cash in my pocket is much better than 'fairyland' currency in the cloud.

Caveat emptor, quia ignorare non debuit quod jus alienum emit.

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Facepalm

Re: yep

I'm guessing the BTC wallet has been confiscated. Maybe. But yes, there's a good chance that those 700k BTC are never, ever going to see daylight ever again. The real problem here is that BTC depends on the private key to "release" the goods ... so if the scammer doesn't give 'em up, those 700k are as good as gone.

Now, I wonder who would be so stupid to fall upon a scam like this. 7% per week return? That screams Ponzi anywhere, BTC or not!

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Re: yep

Personally I can't see BTC lasting that decade or two. The pound in my pocket may not be backed by gold (although gold itself is a fiat market - discuss), but ultimately it is backed by 70M people and a shitload of guns, troops and warships, etc. Bitcoins are backed by a few people promising they're the future (whilst wishing they'd cashed out at $240). It's an mathematical experiment, but beyond this I can see it starving itself in the short-to-mid term, and be as relevant in 20 years as 'Beanz' and other dotcomboomandbust1.0 pseudo currencies are today

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Re: yep

Yeah I was trying to be generous but you are probably right. Probably half a decade tops.

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Mushroom

Re: yep

I will immediately be opening up an American branch to enable investment in the Altairian Dollar, Flanian Pobble Bead, and Triganic Pu....

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Anonymous Coward

Re: yep

I think a lot of these guys know they are investing in such a scheme and see the chance of busting out when the scheme is discovered by the authorities as the risk for getting such a high rate of return.

At 7% per week, you only have to wait 14 weeks to get your money back, everything after that is profit at the expense of others lower down the food chain. If you get in early and the scheme runs for years you could conceivably make a shit ton of money.

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Stop

Re: yep

>> If you get in early and the scheme runs for years you could conceivably make a shit ton of money.

IF you know it's a ponzi.

IF you get out after a while.

IF the scheister actually pays you.

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Re: yep

"I will immediately be opening up an American branch to enable investment in the Altairian Dollar, Flanian Pobble Bead, and Triganic Pu...."

You're going to need a big warehouse to store the ningis, then.

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Anonymous Coward

@ David Hicks

Yep, making him pay you on time is the operative part of this. But let's just put it this way, if he doesn't pay you, you have him over a barrel as you ostensibly know this is a Ponzi scheme and can then threaten to report him to the authorities for running one. He will then most likely make sure you get your money, it's in his best interests to keep the ball rolling.

Meanwhile you sit on your arse getting a great return on your investment while the pressure is on him to keep finding new investors to pay off the old ones.

Then when he runs out of possible investors and the whole house of cards comes falling down, you just sit there all doe eyed - 'Oh Mr police officer, he seemed like such an honest man, I can't believe he would do this', you are completely insulated from any charges as he was the one running it - you didn't know it was a Ponzi scheme, you genuinely thought he was just a great investor!

So in conclusion you've just got rich by sitting on your arse and letting this sap rip off other people for you by proxy and you get to play the victim once it's all over even though you've pocketed all those other peoples money through him.

And people wonder why investors keep on 'falling' for these Ponzi schemes?

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Re: @ David Hicks

>> And people wonder why investors keep on 'falling' for these Ponzi schemes?

Because they think they'll be the clever one that does exactly what you say.

Funny how it seldom works out that way. Even the folks that withdraw cash tend to get suckered in for more and more money.

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Doesnt matter what the currency is...

Scakmers gonna scam...

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Anonymous Coward

Texas man charged in multimillion-dollar Bitcoin Ponzi scheme

Amazing...

Can't believe a Texan would be smart enough to come up with that.

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Holmes

Re: Texas man charged in multimillion-dollar Bitcoin Ponzi scheme

I think he must have been scamming other Texans.

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Re: Texas man charged in multimillion-dollar Bitcoin Ponzi scheme

Can't believe a Texan would be smart enough to come up with that

You clearly don't know many Texans then. They're a pretty clever bunch, despite what the internet thinks of them (and, frankly, they don't care what the internet, or any one else, thinks of them).

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FAIL

It Boggles The Mind

I boggles my mind that people would be so stupid as to invest significant sums of money on the Internet with a guy named 'Pirate'. I mean seriously, these people must be dumb as rocks.

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Facepalm

Re: It Boggles The Mind

PT Barnum applies: There's one born every minute.

(Hmmm, just checked, and apparently he never said that. Oh, well, he can join Confucius and suck it up...)

GJC

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Unhappy

Re: It Boggles The Mind

It boggle my mind that people that stupid have that kind of money.

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Anonymous Coward

Re: It Boggles The Mind

"I mean seriously, these people must be dumb as rocks."

Presumably they were Americans, so not so surprising.

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Happy

Re: It Boggles The Mind

AC Wrote:-

Re: It Boggles The Mind

"I mean seriously, these people must be dumb as rocks."

Presumably they were Americans, so not so surprising.

Well as only 1 in 5 Americans believe in pure evolution, it's probably the other 4.

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If the US government did this...

It would be called "Social Security", and be quite legal.

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Re: If the US government did this...

The US government did this... it's called the Federal Reserve.

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Thumb Up

Re: If the US government did this...

"it's called the Federal Reserve."

Yes! It's the biggest Ponzi scheme ever devised. They should change its name to Ponzilla. :o)

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Re: If the US government did this...

Hence the old saw: "Don't steal, the government hates competition."

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Boffin

Re: If the US government did this...

Don't understand why OP Herby got so many downvotes:

Ponzi scheme - you pay in money now, you are promised you'll get the money back and then more, the initial investors really do get their money back and then more, but this money isn't coming from proceeds of their invested money, it's coming from new money being paid in by new punters. The system only holds up as long as there are enough new entrants into the scheme to ensure that there are more people putting money in than taking money out. The person(s) running the scheme skim some of the proceeds off the top. When it's no longer sustainable it all collapses and members lose most or all of their money.

Government pension - you pay in money now, you are promised you'll get the money back and then more, the initial investors really do get their money back and then more, but this money isn't coming from proceeds of their invested money, it's coming from new money being paid in by new punters. The system only holds up as long as there are enough new entrants into the scheme to ensure that there are more people putting money in than taking money out. When it's no longer sustainable the rules are changed so that members have to keep on paying more and take out less (later retirement age). Members lose (so far) a bit of their money... but quite clearly in the future it will be more, and future members will be asked to pay in more (higher taxes) to sustain the system.

So, not exactly the same but not too far off either

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Re: If the US government did this...

Not sure what it is like where you are but the state pension here does not promise "your money back" it promises X amount per week from age Y until death. The amount can go up and down as the state see's fit.

A private pension takes your money, plays the stock/bond/whatever market to grow you investment. When you cash out you take the amount of money (what you paid in+ employer paid in + what pension company maid/lost with your money) and buy an annuity which pays X amount for Y years.

Neither of these promise to pay you back what you put in. They are both getting top heavy as people live longer. There is also the issue in the UK that people think the state should provide everything rather than state pension/NHS being the safety net "i paid for it so i want it" and not putting money into private pensions/health care IF they can afford it.

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Silver badge

Re: If the US government did this...

@Aldous - you're right, state pension does not promise 'your money back', but a quick back-of-the-envelope calculation shows that to be approximately the case for a generic European country. For someone who is already a retiree, they probably worked around 40 years, and paid approx 10% of salary into social security that's matched by employer, so, 20% of salary goes to the pension fund, so total of 8 years' salary. For life expectancy of 72-ish for a person born in the 40s-50s, that's 12 years that are paid out on 2/3 of salary, so also approx 8 years' salary.

In reality the 2/3 pension is calculated on the later, higher-earning years, not on the average, so as long as a person's salary increases over their lifetime by more than inflation (which has been the case for the baby-boomer generation), they're getting back more than they put in. The rates are also 10% and above in recent years, I believe they used to be lower (Current UK is 12% + another 2% for high earners).

I'm not sure how government pensions were implemented at the time when introduced, but I suspect that people who retired just after implementation started getting benefits that they had not contributed towards, paid for by new contributors... so the new contributors' money could not be held/invested for them. Which makes sense, because if people were only getting out the same as what was put in, there wouldn't be huge unfunded liabilities in pretty much every single government's pension fund.

Private pension is of course totally different and has no relation to a Ponzi scheme

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Re: If the US government did this...

The equation for a private pension is more like this:

[Real] Payout = (A + B + (C-D) - E) ^ (1-F)

where: A = employee's contributions, B = employer's contributions, C = gains made by playing the stock market casino, D = losses incurred by playing the stock market casino, E = pension fund manager's fees, F = compound rate of inflation throughout the life of the pension fund.

The expectation that (C-D)-E will be enough each year to equal or be greater than the amount of F, however the increasing reality is that (D+E)>C and the true value of F is much higher than the government's massaged statistics so that with each passing year, (A+B) is a decreasing sum, and your payout is barely the nominal value of the sums of (A+B), discounted by F.

The only one retiring comfortably from this arrangement is the pension fund manager.

"I promise to pay the bearer nothing at all and will shortly be going on a long holiday to somewhere nice. Signed, Ben Bernanke Herdle Krifnoff (EZ-Tres) EZ-Grand Star Bank of Altair"

You're better off taking the money and investing it in ningis. You may even have enough ningis to have a Triganic pu.

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Joke

Dilbert

http://dilbert.com/strips/comic/2013-07-23/

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WTF?

So soon after Madoff?

Stupidity and Greed, joined at the hip..

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There's a government interest in Second Life, and the Linden Dollar virtual currency used there. Both BTC and the L$ would come under US regulation under the same guidelines.

It's before my time in SL, but there were "banks" in that virtual world, and the stories I heard suggest that they were Ponzi schemes. "Stock exchanges" too. Linden Labs eventually shut them down. I never heard of any criminal charges, but this was long enough ago that maybe there were no precedents.

This case would be a precedent. The US Treasury's Financial Crimes Enforcement Network (FinCEN) has also laid out new definitions which would cover BTC and other virtual currencies.

The last I heard, one of the alleged crooks of that era was writing for a blog reporting on Second Life and making dire predictions about what Linden Labs was doing with the virtual economy.

Linden Labs has some very convoluted language in their ToS claiming that the L$ was not money, but the US government thinks differently. And some people within Second Life are alleging shenanigans: but they always do.

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Happy

"Any investment in securities in the United States remains subject to the jurisdiction of the SEC regardless of whether the investment is made in U.S. dollars or a virtual currency,"

It's a shame they hadn't said this back in the days when I was playing EVE Online. Although anyone trying to clean up the scams in EVE would need an awful lot of staff...

On a serious note, I always thought that Linden Labs were trying to encourage the use of Linden Dollars for real world transactions. Or at least trying to encourage real world companies to trade inside Second Life. So I don't see how they can also try to get away with calling it an in-game currency only.

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ISK does not make any pretentions towards being a real currency. It is an in game currency only and not subject to the SEC.

Don't give government any ideas, the last thing we need is them taxing our in game currencies!

Oh and you got scammed in EVE - HaHa!

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Happy

I'm sorry but I keep having this vision of some irate WoW player calling the SEC and trying to get an orc named "Suxtobeu" prosecuted for failing to hand over a stack of peacebloom after taking his 3 gold payment.

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Happy

Oh and you got scammed in EVE - HaHa!

Tee hee. Nope. I wasn't ever rich enough to look at EVE banks and the stock market. Although I do know someone who ran a bank and didn't steal anyone's money for years. Gave good interest too.

Then I think he just got bored, and so decided to keep the lot. At one point he had over 100 billion ISK invested, so worth thousands of real pounds, if you could convert it.

Good old EVE, a hive of scum and villainy. Good for a giggle if you like blowing things up, and don't mind it all going horribly wrong every so often. Which it undoubtedly will.

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ISK can be used to buy play passes

Play passes can be sold for monies. Not sure it's against CCP's ToS or not, but it's certainly possible.

Therefore, you can convert ISK into real money. In fact if you're that awesomely good at the game, it's feasible you could make yourself quite the wage packet out of just playing a computer game.

To make it more interesting, scams are a legitimate playing tactic in EVE. Hell, look at the "Causality" trailer and you'll find that CCP are even encouraging people to be downright dirty bastards (but only to bad guys, of course).

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Re: ISK can be used to buy play passes

M Gale,

CCP discourage it, but you can buy ISK on Ebay. Although it's reasonably hard to do without getting scammed or caught. And CCP can destroy it, if they catch you. So I can't imagine you can sell £1,000 of ISK in more than small chunks.

Of course they've also had an official market for a while now. But it's designed not to let you make a profit, but to allow people with time but no cash to play the game for free. So you buy game time for ISK in game, and people's game time bought from CCP is an in-game resource (a PLEX) until they use it. So by that method you can buy ISK for real money, but you can only sell it for game time cards. Again you can sell them in real life for cash, but then people have to trust you to give them to them in the game.

Also, rather cunningly from CCP, as these are in game assets, not only can they be scammed / stolen, but PLEXes can also be destroyed - if transported on a ship. So if that happens, CCP get to effectively steal the cash paid to them by gamers to play (as I recall there's no need to put them on a ship - so it's your own fault). Sometimes EVE can be an unfriendly place...

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So... if instead of offering 7% a week he gave 0.5% a year and he regularly made up ridiculous charges he would be bank

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Just saying...

'Discreetly': seeking to avoid attention as much as possible

'Discretely': separately, in divided units

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Another one bites the dust

Scammers are out to fleece the ignorant. This scammer will be residing in prison for the next five years.

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"The US Securities and Exchange Commission has issued a warning about the potential dangers of investing in virtual currencies"

I keep getting stuck at this line. I mean, isn't the whole stock exchange one big virtual currency? One day your piece of paper from X Corp is worth ten bucks, the next day it could be a penny.

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Right idea, wrong execution

I've not seen the chap behind this's sales pitch - or if he came up with some credible real-world marketing outside of his "pirate" moniker online, etc, but there is an investment pitch to be made here that /can/ sound credible.

I.e. there are arbitrage opportunities of >5% at any given point between the different BitCoin exchanges. You can easily demonstrate how these can be leveraged to buy on one whilst selling on another and making a 5%+ margin each time.

To anyone who knows enough to be dangerous but not enough to be competent, I can see how they get suckered in by the promise of fools gold.

The reality is that by the time you've paid your fee on the exchanges, and had to do IBAN transfers from one exchange into your account back into another exchange, and (if he wasn't a merkin) to and from Yen with skewed exchange rates and FX fees, etc. each time assuming Mt.Gox is part of the loop... you realise that you're losing 5%+ of your money to the middlemen. And you're left with... ummm.... nothing.

The irony being that If "real money" were as easy and free to move around globally as Bitcoin, there'd be genuine margins here. ...And also no real need for Bitcoin. ...And also equivalent exchange rates.

As someone who's been involved in digital currencies since the start, but from a banking industry background, here's my 0.000338 BTC:

- They do serve a purpose and solve a real problem. Therefore they do have an innate value

- The problem is, the majority of that purpose and value is in illicit trade; moving money across borders, avoiding sanctions and AML screening, etc.

- Like many currencies and artefacts, their purpose as an instrument for financial speculation should never be underestimated. Not just because it has such fluctuation, but also because:

1. It's an easily manipulated market, and you DO get a lot of market manipulation of it by less salubrious types

2. It's a proxy for the rise of a digital economy, and so there are reasons others would want "a piece of the action"

3. It's an easy route into the equivalent of a "tech stock" that feels earlier in the cycle... for all those who wished they'd been angel investors to the dot-com startups and missed out on the pump and dump there

The flip side:

- An attempt at regulation will happen. And this will destabilise something that's already unstable... Realistically, I imagine it'll be the big exchanges that'll have their accounts frozen, making cash-in / cash-out problematic, removing many of the currencies secondary uses, and limiting it to being more a local currency kept within certain (illegal) circles

- Something else will come along and be the successor to BitCoin. It has innate problems that will need solving, an exchange between BTC and that will need creating. Watching out for this successor (and I don't mean "the next CNC / FTC / YAC clone of BTC") could be profitable

- The influx of public interest will die without profits / further pumping of the value / interesting news stories to fuel the hype. And without that public interest and the changing supply/demand ratio it creates, I can see a slide in the value... in the absence of other events occurring

- It's always the pick axe salesmen that get rich in a gold rush. Watching what happens with Butterfly Labs and the like will also be interesting

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Facepalm

Snakeoil purchasers have been scammed!

Who'd a thunk it?!

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Opportunity/cost

Bitcoin does provide opportunity, insofar as it's high volatility provides the possibility of great gains. However, as the SEC spokesman said, anything claiming great gains and no risk is almost certainly a scam; the cost of this volatility is that it's easy for someone to also lose a lot of money.

"On a serious note, I always thought that Linden Labs were trying to encourage the use of Linden Dollars for real world transactions. Or at least trying to encourage real world companies to trade inside Second Life. So I don't see how they can also try to get away with calling it an in-game currency only."

They banned all in-game casinos and a few other things several years ago for just this reason (they were told, as they were running an exchange between lindens and dollars, that this in-game gambling was gambling and they didn't want all that regulatory hassle.)

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