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.


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.

Scam of the day – May 15, 2014 – SEC issues bitcoin warning

Recently the Securities and Exchange Commission (SEC) has issued a new warning about the risks of Bitcoins and other forms of virtual currencies.   Bitcoins are a system of digital currency that can be used throughout the world.  Unlike other online payment systems such as PayPal, there are no charges or commissions for using Bitcoins.  Some speculators have gone into trading Bitcoins, which is indeed a risky investment.  Unfortunately, Bitcoins are not a true currency issued by a government and regulated by any nation.  Also, unfortunately, the security of the major Bitcoin exchanges has not been as secure as major banks and other major financial institutions and they have been easy pickings for hackers whose  hacking into the largest Bitcoin exchange, Mt. Gox resulted in a loss of 850,000 Bitcoins and a declaration of bankruptcy by Mt. Gox.  Bitcoins have also been used in Ponzi schemes and other fraudulent investment schemes where scammers take advantage of the average consumer’s lack of knowledge about Bitcoins


As an investment, Bitcoins are highly speculative and their value could easily plummet for many reasons including the general lack of security by major Bitcoin exchanges.  As for using them as currency, the lack of regulation makes them a risky way to pay for goods as well as the fact that you are seriously limited as to the places that will accept Bitcoins.  As with any investment, the rules for avoiding scams apply.  Be wary of guaranteed high returns and don’t invest in anything unless you have investigated both the investment and the person offering to sell you the investment.