In a landmark case that marked the intersection of cryptocurrency and traditional securities law, Trendon Shavers of McKinney, Texas, pleaded guilty to securities fraud for operating a multimillion-dollar Ponzi scheme using Bitcoin. Known as the founder of Bitcoin Savings & Trust (BS&T), Shavers promised investors consistent, high-yield returns, misleading many into believing they were part of a legitimate investment operation.
Launched in 2011, BS&T enticed individuals to invest their Bitcoin with promises of earning one percent interest every three days—or nearly seven percent per week. These claims, while appealing to investors seeking rapid returns, were entirely unfounded and unsustainable.
Instead of generating real profits through legitimate trading, Shavers used new investor funds to pay previous investors, a classic hallmark of a Ponzi scheme. At its peak, Shavers’ operation reportedly controlled nearly 7% of all Bitcoin in circulation, making it one of the most significant frauds in early cryptocurrency history.
How the Scheme Worked
Shavers operated mostly on online platforms, leveraging forums like BitcoinTalk to reach unsuspecting investors. He positioned BS&T as an arbitrage operation, claiming he could buy Bitcoin at lower prices and sell at a premium to willing buyers. However, there was little to no evidence that such arbitrage activities ever took place.
Instead, he diverted funds for personal use, including lavish spending on:
A used BMW M5
A $1,000 steakhouse dinner in Las Vegas
Multiple casino trips
The reality was that BS&T was not investing or trading Bitcoin at scale. The “interest payments” made to early investors came solely from the funds provided by new victims—a textbook example of a Ponzi scheme.
Legal Fallout: Criminal and Civil Actions
In 2012, when investor payouts became unsustainable, Shavers abruptly shut down BS&T, leaving many victims with substantial financial losses. The collapse prompted an investigation by the U.S. Securities and Exchange Commission (SEC), which led to a civil lawsuit. Shavers was found liable in the civil case and was ordered to pay $40.7 million in disgorgement and penalties.
Shavers was later arrested and criminally charged. He eventually pleaded guilty in Manhattan federal court to one count of securities fraud, making it the first federal criminal case involving Bitcoin-related fraud in the United States.
At the time of the scheme’s collapse, Shavers had received more than $750,000 worth of Bitcoin, equivalent to about $4.5 million in today’s market. Prosecutors estimate he misappropriated roughly 150,000 Bitcoin and personally profited over $164,000.
Shavers’ Sentencing and Public Acknowledgment
During his court appearance, Shavers expressed remorse for his actions, stating:
“I know what I did was wrong, and I’m very sorry.”
His sentencing was scheduled for February 3, 2016, marking the end of one of the first—and most prominent—Bitcoin fraud cases in U.S. history.
What This Means for Investors
The Shavers case underscores the risks associated with unregulated investment opportunities, particularly in the rapidly evolving world of cryptocurrencies. While blockchain technology offers transparency, not all investment opportunities in this space are legitimate.
Ponzi schemes often rely on high returns, urgency, and a lack of due diligence—traits that were all present in the BS&T case. Investors are reminded to:
Verify credentials of fund managers
Be cautious of “guaranteed returns”
Seek independent legal or financial advice before investing
If you suspect you’ve been targeted in a similar fraud, it’s critical to act quickly.
Your Legal Rights if You’re a Victim of Investment Fraud
Victims of Ponzi schemes may be able to recover lost funds through civil litigation, FINRA arbitration, or SEC restitution programs. An experienced investment fraud lawyer can help you understand your legal options.
Our firm, the Frankowski Firm, has successfully represented victims of securities fraud across the United States, including those impacted by cryptocurrency scams. Whether the fraud involves a registered financial advisor or an unregistered entity like BS&T, our attorneys are ready to fight for justice on your behalf.
Internal Links You Can Explore:
Key Takeaways
Trendon Shavers operated one of the earliest Bitcoin Ponzi schemes, defrauding investors of over $4.5 million.
He falsely promised 7% weekly returns and diverted funds for personal luxury spending.
Shavers pleaded guilty to securities fraud, making his case the first criminal prosecution involving Bitcoin fraud.
Victims of similar schemes may be eligible for legal restitution through a securities fraud attorney.
Always verify investment legitimacy, especially in cryptocurrency-related opportunities.
FAQs
1. What is a Ponzi scheme, and how does it work?
A Ponzi scheme is a type of financial fraud that promises high returns with little risk. Instead of generating profits through legitimate business activities, the scheme pays earlier investors with funds collected from newer investors. This creates the illusion of a profitable enterprise until it inevitably collapses when new investment dries up. The name derives from Charles Ponzi, who orchestrated a famous scheme in the 1920s. Ponzi schemes typically collapse when the operator can no longer recruit new investors or when too many existing investors request withdrawals.
2. Is Bitcoin regulated by U.S. securities laws?
Bitcoin itself is not classified as a security, but investments involving Bitcoin can fall under the jurisdiction of U.S. securities laws if they meet the criteria of an “investment contract” under the Howey Test. In the Shavers case, the SEC determined that the investment arrangement constituted a securities offering because it involved pooling investor funds with the expectation of profits generated by others. As cryptocurrency evolves, so does its regulatory framework, making it essential to consult legal professionals when evaluating crypto-related investment opportunities.
3. Can victims of crypto fraud recover their money?
Yes, victims of crypto fraud may be able to recover their losses through civil lawsuits, arbitration, or regulatory restitution programs. While recovery can be complex due to the decentralized nature of cryptocurrencies, successful legal claims have been brought against fraudsters, brokers, and even platforms. It is essential to document all communications, transactions, and account details related to the fraud and contact a securities fraud attorney as soon as possible. The sooner legal action is taken, the higher the likelihood of recovery.
4. How do I know if I’ve been targeted by a Ponzi scheme?
Common red flags of a Ponzi scheme include:
Promises of consistently high or guaranteed returns
Lack of transparency about how profits are generated
Pressure to reinvest earnings rather than withdraw
Delayed or denied withdrawal requests
Unregistered investment opportunities or advisors
If any of these warning signs are present in an investment opportunity you’ve been offered, it’s critical to consult with an investment fraud lawyer immediately. Early action can help preserve your rights and potentially prevent further losses.
5. Why should I hire a securities fraud lawyer?
Securities fraud cases are highly complex and often involve overlapping federal and state regulations. A qualified securities fraud attorney can help:
Evaluate the strength of your case
File timely claims with the appropriate regulatory bodies (e.g., SEC, FINRA)
Represent you in arbitration or litigation
Pursue maximum compensation for your losses
At the Frankowski Firm, we specialize in representing victims of financial fraud, including Ponzi schemes and cryptocurrency scams. Contact us today for a free consultation.
Contact Us
If you or someone you know has suffered financial loss due to a Ponzi scheme, fraudulent investment, or crypto scam, reach out to the Frankowski Firm. Our experienced attorneys can evaluate your case and guide you through the legal process of recovery.
Contact Us Or complete our secure contact form to schedule a consultation.