U.S. judge awards $40.7M in SEC case over Bitcoin Ponzi scheme | Hacker News Reader

U.S. judge awards $40.7M in SEC case over Bitcoin Ponzi scheme

reuters.com

37 pointsuptown20 comments

From the SEC complaint [1]:

    During the relevant period, Shavers transferred at least 150,649 BTC to
    his personal account at an online BTC currency exchange which,
    among other things, he then sold or used to day-trade 
    (converting BTC to U.S. dollars and vice versa). As a result of this activity, 
    Shavers suffered a net loss from his day-trading,
    but realized net proceeds of $164,758 from his net sales of 86,202 BTC.

It is interesting how little money he actually made from the scam, unless he hid BTC outside of law enforcements' reach.

[1] http://www.sec.gov/litigation/complaints/2013/comp-pr2013-13...

Maybe I don't understand, but to me it sounds like he sold 86,202 BTC for $164,758. Which means he still has 64,476 BTC, currently worth $25,778,155.

The complaint implies that he lost 64k BTC trading. Based on my observations of pirateat40's behavior and personality during the time he ran the scam, this is a much more likely outcome than him secretly holding on to a large number of BTC. In my opinion, Pirate manipulated the market to feed his own ego, not to make a profit, and incurred large losses buying high to raise the price and selling low to drop it.

It also mentioned that he stored assets at Mt. Gox, meaning that some or all of his holdings may have evaporated.

Is it possible his "losses" were really just transfers to other accounts he owned?

I assume that the SEC gained access to his exchange accounts' transaction history and discovered that he did indeed lose money trading.

Without any jail time, what's the disincentive? A smart scheme would have a bunch of funds paid out to numerous early, repeat investors, where each one is secretly the ponzi creator but is made to look like a normal investor. Meanwhile, the creator transparently takes a small fraction of the bitcoin as profit, knowing that it will be found and forfeit later. After the fines accumulate give up the transparent amount, declare bankruptcy, and enjoy the secret horde of hidden, untraceable bitcoin.

"Without any jail time, what's the disincentive?"

The SEC doesn't have the authority to file criminal charges they can only pursue things themselves in civil court.

http://knowledge.wharton.upenn.edu/article/why-so-few-securi...

> The SEC doesn't have the authority to file criminal charges they can only pursue things themselves in civil court.

There are criminal laws that apply to securities fraud, and the SEC is supposed to refer violations to the Justice Department, which can file criminal charges. So, while this is true, it isn't really relevant to the criticism raised (which indicate that the absence of jail time was a problem, but did not indicate that the source of the problem was the SEC; all pointing out the boundaries on what the SEC can do "in house" is relevant to is which box on the federal org chart should be the target of complaints.)

Which is a damn good thing. Do you really want criminal charges being brought for something jurors can't understand as being bad without digging through obscure accounting and finance concepts?

Unless there are clawbacks like in the Madoff case.

> Mazzant held Shavers and his company liable to give up $38.6 million of illegal profits plus $1.8 million in interest. Each defendant was also fined $150,000.

The loss to investors was about $150 million.

That's at today's bitcoin prices, though. The scheme operated in 2011-2012, when bitcoin prices ranged between 30 cents and 30 dollars.

I'm curious as to how they dealt with that price evaluation.. Is this the first Bitcoin related SEC case?

So in total the investors lost 150 millions in a ponzi scheme,which is of course totally illegal,but the company only has to pay 40 millions + the fine ?

Which basically means they get away with 110 millions ? (granted that since it's a ponzi scheme they may have given some money to early investors).

The 150 million is at today's bitcoin prices. The bitcoin prices were much lower back then.

>During the relevant period, Shavers obtained at least 700,467 BTC in principal investments from BTCST investors, or $4,592,806 when converted to U.S. dollars based on the daily average price of BTC when the BTCST investors purchased their BTCST investments.

I'm not sure whether he sold his bitcoins back when the prices were low or held them.

It is great to see the US punishing people using bitcoin the wrong way... They even kind of implied that they think it is a real currency! I'm sure that this is a reversal on their position!

Not really. The US government has been quite supportive of bitcoin. They even auctioned a block of bitcoin to the public.

I wouldn't call that support, so much as auctioning it off because they're required to, need to convert it to real currency, or just don't know what the hell else to do with it.

Nothing was ever mentioned about supporting it in any way, shape or form.

I think treating it as something of value is a meaningful type of support. If they seized something like a broken DVD player they'd probably just dispose of it, and if they seized illicit drugs they'd destroy them. Auctioning them says that it's a legal store of value.

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