On Tuesday, a federal judge in Texas ruled that a Ponzi-like scheme involving Bitcoin (the digital currency) is to be treated in the same fashion as a similar fraud scheme involving traditional money. U.S. Magistrate Judge Amos L. Mazzant gave the US Securities and Exchange Commission the go ahead to proceed against Trendon Shavers of Bitcoin Savings & Trust for running a Ponzi scheme with bitcoins.
The judge ruled that Bitcoin was little different from real money as acquiring Bitcoins required an “investment of money,” and Bitcoin could be traded against other traditional currencies. It was just another medium of exchanging value, though not issued by any government.
The decision is significant in that it defines the legal status of Bitcoins almost at par with government issued currency, where criminal liabilities are concerned.
In the instant case, Shavers had promised interest rates of up to one percent a day to people investing in Bitcoins, but like other Ponzi schemes, the scheme collapsed. There was a net loss of 263,104 Bitcoins by investors. The amount was worth $1.8 million at the time of purchase, and is worth $23 million at current rates.
Shavers argued that accusations against him did not come under the purview of the SEC as BTCST investments were not securities, and as because Bitcoin is not money, and not part of anything regulated by the United States.
The court observed, “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 … 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.”