- Bitcoin Savings & Loan was the first Bitcoin investment scam to be prosecuted in the U.S.
- The Ponzi scheme was created and operated by Trendon Shavers – aka Pirate40
- Bitcoin Savings & Loan defrauded dozens of users out of hundreds of thousands of bitcoin
Bitcoin Savings & Loan is a name that will give many Bitcoin OGs a wry smile, but it is one that will mean nothing to those who joined the space after the 2012 bull run having rarely heard of it. However, it has the rather dubious honor of being the first Bitcoin investment scam to be prosecuted in the U.S., and the name of its operator, Trendon Shavers, has gone down in Bitcoin folklore. But what was Bitcoin Savings & Loan and how did its story play out? We go back to the heady days of 2011 to find out.
First Pirate Savings & Trust
Bitcoin Savings & Loan began life as First Pirate Savings & Trust in early 2011, when Trendon Shavers, under the guise Pirate40 on the Bitcointalk forum, began soliciting for bitcoin investments and guaranteeing returns for those that did. A small group invested which gave Shavers the confidence to take the scheme global, announcing Bitcoin Savings & Loan in November 2011, as recorded by one V. Buterin.
Shavers claimed to be connected with “a don’t ask don’t tell group of people” who were apparently frequently looking to buy large amounts of bitcoin “off the radar”. Having run out himself, Bitcoin Savings & Loan offered between 1-3.5% interest per day to anyone who deposited their bitcoin for the purpose, with Shavers buying fresh bitcoin and sending it back, with the interest.
Closure Crashed the Bitcoin Market
Bitcoin Savings & Loan was very successful, raising some 764,000 bitcoin from around 100 investors, worth roughly $5 million at the time. Between the time of the scheme being formalized in November 2011 and closing down nine months later, Shavers paid out 507,148 bitcoin in investor withdrawals and purported interest payments, but he also cashed out at least 150,649 bitcoin which the SEC alleged he spent on “rent, car-related expenses, utilities, retail purchases, visits to casinos, and meals” for himself.
When Bitcoin Savings & Trust closed down in August 2012, apparently due to “the general size and overall time required to manage the transactions”, the news crashed the Bitcoin market, which fell from $16 to $7.07 within three days surrounding the news, and fears that the whole thing had been an enormous scam. A Bitcoin Magazine article published on the day of the closure announcement summarized the uncertainty felt by investors and the Bitcoin community at large:
Although it remains unconfirmed as of yet whether Pirateat40’s proposed investment service was or was not in fact a ponzi, the truth will undoubtedly be more clear next week: he has promised to pay back all of his users within a week, and begin those paybacks starting on Monday. We will find out very quickly whether he has the ability to repay all customers, or if those words were the last we’ll ever hear from him.
Initially things seems to be going well, with Bitcoin Savings & Trust honoring 11 withdrawals, but on August 28 Shavers announced that the fund had defaulted:
As much as I’ve tried to meet the deadlines within the community, there’re conditions beyond my control which have escalated the process to the point it is today. Bitcoin Savings & Trust has hereby given notice of default to it’s [sic] account holders.
Investors Take Legal Action
Investors began filing police report immediately, and the case was handed over to the Securities and Exchange Commission (SEC), who in July 2013 charged Shavers with offering and selling investments in violation of the anti-fraud and registration provisions of the securities laws, culminating in him being hit with a $40 million fine in September of 2014.
Shavers had tried to argue that he was not subject to federal securities laws because Bitcoin could not be classified as a security, but this argument fell on deaf ears, ushering in a legal precedent in the process. At the time the charges were announced in 2013, the value of the $5 million worth of bitcoin that Bitcoin Savings & Trust had taken in had ballooned to over $60 million.
Just weeks after the issuing of the fine, Shavers became the first person to be hit with federal criminal securities fraud charges involving a Bitcoin-related scheme when he was arrested on wire fraud and securities fraud charges, which came with a maximum 40 year prison sentence. Charges revealed that 48 of the approximately 100 investors had been defrauded by Bitcoin Savings & Trust and Shavers, who had squandered tens of millions of dollars in investors’ bitcoin by either trading or spending it.
Shavers Faces Court
Shavers’ case began in March 2015 where he pleaded not guilty, offering a rationale for the bitcoin black hole that was as hole-filled as it was novel – he claimed that he had loaned 202,000 bitcoin to an “anonymous borrower” in July 2012 who had absconded with the funds, although he had no records of the transaction to back up his claim.
Seemingly realizing that defeat was imminent, Shavers admitted one count of securities fraud in September 2015 and was sentenced to 18 months in prison in July 2016, more than five years after First Pirate Savings & Trust first began accepting deposits.
Bitcoin Savings & Loan the First but Not the Last
Shavers completed his sentence in 2017 and has kept a low profile since, but he and Bitcoin Savings & Loan have gone down in history as the first Bitcoin-related Ponzi scheme to be prosecuted, paving the way for many ever since.
If only he could find that person who he sent the 202,000 bitcoin to…