The US Securities and Exchange Commission (SEC) has charged a Texas man and his company for defrauding investors using a bitcoin Ponzi scheme.

According to the SEC, Trendon T. Shavers, founder and operator of Bitcoin Savings and Trust (BTCST), allegedly used the monikers ‘Pirate’ and ‘pirateat40’ to offer and sell bitcoin investments on the internet. He managed to raise at least 700,000 BTC, which is now worth more than $64 million.

Shavers promised the investors they would receive up to 7% interest per week based on the company’s bitcoin market arbitrage activity, however, BTCST was merely a pyramid scheme that used money from new investors to pay the ‘interest payments’ of earlier investors. The SEC alleges Shavers was also exchanging investors’ bitcoins for US dollars in order to pay his personal expenses.

An investor alert issued by the SEC warned people about the dangers of investment scams using digital currencies such as bitcoin.

“Fraudsters are not beyond the reach of the SEC just because they use bitcoin or another virtual currency to mislead investors and violate the federal securities laws,” said Andrew Calamari, director of the SEC’s New York Regional Office.

He went on to explain that Shavers had claimed, in an online forum, that his investments carried no risk, but huge profits. In reality, his intentions were “rooted in nothing more than personal greed”.

The SEC is charging Shavers and BTCST with violating anti-fraud and registration provisions of security laws. It is seeking a court order to freeze the assets of Shavers and his company, plus is also looking for permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The investor alert warns that if an investment appears too good to be true, it often is.

“Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims,” said Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. “Investors should understand that regardless of the type of investment, a promise of high returns with little or no risk is a classic warning sign of fraud.”

Patrick Murck of the Bitcoin Foundation said Shavers preyed on the bitcoin community so it’s no surprise the SEC decided to take action against him.

“This is a clear warning to scammers and schemers that bitcoin does not suddenly make Ponzi schemes or other scams moral or legal.

“I think the SEC was very responsible in noting that this is not a bitcoin story, rather an all too common story of a scammer promising investors a too good to be true opportunity,” he added.