Because investors paid for the interest in bitcoins, Shavers argued that bitcoins were not currency and the interests did not involve an investment of money. In pretrial motions, the court addressed whether the interests in BTCST were investment contracts under the federal securities law.
The SEC also alleged that Shavers violated Section 5 of the Securities Act of 1933 by failing to register the investments in BTCST. so obvious the defendant must have been aware of it.” To establish Section 17(a) Security Act liability, the SEC had to prove the same elements, but without the scienter requirement. as a fraud or deceit upon any person.” Additionally, to establish liability, the SEC had to prove Shavers acted with scienter or “an extreme departure of the standard of ordinary care. Section 10(b) and Rule 10b-5 prohibit (1) the use of any “device, scheme, or artifice to defraud” (2) “an untrue statement of a material fact” or omission or (3) “any act, practice, or course of business which operates. The SEC alleged Shavers violated Section 10(b) of the Exchange Act and Rule 10b-5, as well as Section 17(a) of the Securities Act. According to the court, “ he uncontested summary judgment evidence establishes that Shavers knowingly and intentionally operated BTCST as a sham and a Ponzi scheme, repeatedly making misrepresentations to BTCST investors and potential investors concerning the use of their bitcoins how he would generate the promised returns and the safety of the investments.” Shavers used online chat rooms to solicit BTCST investors with false promises of earning interest of up to 7% every week. The court further required each defendant to pay an additional civil penalty of $150,000.Īccording to the SEC’s allegations, Shavers established BTCST, an unincorporated online entity, in February 2011, in order to obtain investments that would provide returns in the form of bitcoins. Shavers and Bitcoin Savings and Trust (“BTCST”) and ordered them to pay more than $40 million in disgorged profits and prejudgment interest. 18, 2014), the United States District Court for the Eastern District of Texas entered final judgment against Trendon T.
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