The Securities and Exchange Commission (SEC) took civil action against the founder and operator of Bitcoin Savings and Trust (BTCST), Trendon Shavers for running a Ponzi scheme. Shavers reportedly took in 700,000 Bitcoins from 66 investors under the alias ‘pirateat40′. The Bitcoins were valued at $4.5 million (R44 million) at the time. Investors who were paid in these Bitcoins were promised a return of 7%, but Shavers’ scam came crumbling down in August 2012.
The SEC detailed that the money Shavers made from his Bitcoin investors was spent on “rent, car-related expenses, utilities, retail purchases, casinos and meals”. In total his investors lost 263,104 Bitcoins which were valued at $3 million (R29 million) at the time. Today they are valued at $26 million (R256 million).
Shavers’ defense against the SEC’s civil case was that Bitcoin is not money. Magistrate Judge Amos Mazzant of the Eastern District of Texas wrote:
Shavers argues that the BTCST investments are not securities because Bitcoin is not money, and is not part of anything regulated by the United States.
Shavers also contends that his transactions were all Bitcoin transactions and that no money ever exchanged hands.
But the prosecutors at the SEC argued:
[Bitcoins] are both investment contracts and notes, and, thus, are securities.
Unlucky for Shavers and his argument that Bitcoin is simply “digital points” and has no “real world value” as Judge Mazzant concurred with the SEC. Judge Mazzart wrote:
It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses.
The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan.
Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.
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