Scam of the day – November 18, 2014 – Bitcoin Ponzi scheme

Bitcoins are the increasingly popular digital currency that is privately issued and not supported by any government in the world.  It is, however, used by many people throughout the world.  Recently, Trendon Shavers was arrested in Texas and charged with securities and wire fraud in relation to his offer of 7% weekly interest on bitcoins deposited with his Bitcoin Savings and Trust Company.  This promise of an annual percentage interest of 3,641% managed to lure investors to turn over to him 740,000 bitcoins valued at 4.5 million dollars.  Shavers advertised his scheme on the internet bulletin board “Bitcoin Forum” and other online discussion groups.  He claimed that using his market-arbitrage strategy that included lending and trading bitcoins on online exchanges.  His complex and non-understandable strategy mirrors the original Ponzi schemer, Charles Ponzi who used a similar scheme involving international stamps.  As with Ponzi, Shavers appeared to be legitimate by paying profits to early investors.  However, as with Ponzi himself, there were not profits and the early investors were paid with the funds being contributed by newer investors to make the phony investment scheme appear legitimate.  Shavers, like Ponzi was extremely persuasive and according to prosecutors, at the height of his scam, he personally controlled 7% of the world’s bitcoins.

TIPS

Due to the fact that bitcoins are totally unregulated by any government, they are a questionable investment.  Add to that fact, their digital character and its susceptibility to hackers and fraud and you have a dangerous investment at best.  Shavers is just the latest in a long line of Ponzi schemers who make promises that are too good to be true backed up by an incomprehensible formula for investment success. You should always remember the prime rule of investing which is to never invest in anything or any investment strategy that you do not totally understand.

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