Texas man charged with running $60M Bitcoin Ponzi scheme | Hacker News Reader

Texas man charged with running $60M Bitcoin Ponzi scheme

venturebeat.com

57 pointsSealy24 comments

I remember when egold was a big thing, and every other site called itself a 'HYIP', high yield investment program -- they were all ponzi schemes, but the popularity of the larger ones spawned an entire ecosystem of these sites that were propelled only on the naive fantasies of those buying in to them. People truly believed that these programs worked.

I recently heard about HYIP for the first time and did some reading - the amount of self-deception I saw was breathtaking. There were even sites that rated HYIPs by their "investment" structure and current payout status. People knew it was a Ponzi scheme and still believed that they could profit.

Truly, money eats brains.

Those HYIP forums felt, to me at least, like it was Ponzi meta-investing. Many of the HYIPs paid out for a little while to encourage more 'investments'. So the part of the game was to get into early ones, but then get your money out before it closed.

So there were absolutely no differences to "normal" Ponzi schemes, except the participants went into into fully knowing what it was, but believing they knew how to beat the odds.

Maybe those were fake profiles generating confidence among potential 'investors' / marks?

I uh... think I may have supplied one of those operators with software to automate payments. It was all rather arms-length and I didn't enquire, but it involved paying out interest to hundreds of e-gold accounts. And I got paid well.

BTCST also spawned a huge ecosystem of "pirate pass through" operators -- the operator of BTCST went by the nickname PirateAt40 -- who gathered small deposits, offering small time "investors" the opportunity to piss away their BTC.

The sad part is that for a long time the 7% per week he promised was actually possible with arbitrage if you knew what you were doing (though probably not at the scale he was operating at). There are a few more lawsuits/prosecutions likely in the pipeline - Bitinstant for one.

Why Bitinstant?

They turned into a quasi-Ponzi scheme earlier this year. Until they shut down, they delaying orders, in some cases by months, and using money from new orders to pay for the old pending orders. Who knows where the money from the old pending orders went.

or MtGox

Previous discussion: https://news.ycombinator.com/item?id=6091412

And the bitcointalk thread: https://bitcointalk.org/index.php?topic=108282.0

The SEC press release is at http://www.sec.gov/News/PressRelease/Detail/PressRelease/137...

Hmm... was expecting an article on Butterfly Labs.

I ask why, if he got 4.5 in investments and it grew to 60, why not just pay back investors the 7% and still pocket some nice earnings?

Perhaps his debt was in bitcoins, so it also increased (as priced in USD)

That is correct.

Trendon's whole scheme would have worked if the price of bitcoin had started falling, instead of rising so much.

No, really, the debt to depositors was owed in bitcoins. Don't know why I'm getting downvoted. It is a fact.

If he convert all bitcoin to USD and bitcoin value went down, he can the previous USD to buy the promised bitcoin and payback.

> Shavers raised at least 700,000 Bitcoin in BTCST investments, which amounted to more than $4.5 million based on the average price of Bitcoin in 2011 and 2012 when the investments were offered and sold. Today the value of 700,000 Bitcoin exceeds $60 million.

> [...] Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments. Shavers also diverted investors’ Bitcoin for day trading in his account on a Bitcoin currency exchange, and exchanged investors’ Bitcoin for U.S. dollars to pay his personal expenses.

> He transferred at least 150,649 Bitcoin to his personal account at an online Bitcoin currency exchange. Shavers suffered a net loss from his day trading,

> Shavers transferred $147,102 from his personal account at the online Bitcoin currency exchange to accounts he controlled at an online payment processor as well as his personal checking account. He used this money to pay his rent, utilities, and car-related expenses as well as for food and retail purchases and gambling.

So why does the title indicate it's a $60M scheme when the value of it is in bitcoins?

Unless, of course, bitcoins themselves have no intrinsic value of their own, and are only worth something when converted to USD.

Which they are, outside of a few small-scale incentives.

The title used USD because it's a newspaper that is trying to communicate the news to people, and is avoiding the jargon that night not be widely understood. Don't read too much into it.

Newspapers can report a Japanese company's profits in USD, but that doesn't mean yen are devoid of value…

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