US man jailed over bitcoin fraud scheme

image copyrightReuters
image captionShavers said he "royally messed up" by running the fraudulent scheme

A Texan man has been sentenced to 18 months in jail for running a fraudulent Ponzi-style scheme based around the Bitcoin virtual currency.

The scheme - run by Trendon Shavers - promised high returns to those who backed bitcoin-related investments.

Instead of investing cash, Shavers used it to pay early investors in the scheme and to amass bitcoins.

Investors who backed the scheme lost about $1.23m (£940,000) in total, said Shavers' lawyers.

Shavers has been ordered by the court to repay the money which investors lost.

Family money

He was arrested in 2014 for running the scheme which, at one point, controlled 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.

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".

US federal sentencing guidelines suggested 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.

He is believed to be the first person to face federal securities fraud charges involving bitcoins.

More on this story