QUADRIGA INITIATIVE
CRYPTO WATCHDOG & FRAUD RECOVERY PLATFORM
A COMMUNITY-BASED, NOT-FOR-PROFIT
$5 300 000 USD
AUGUST 2012
UNITED STATES
BITCOIN SAVINGS AND TRUST
DESCRIPTION OF EVENTS
"Howdy... pirateat40 here, long time watcher first time poster. Those that know me, know me from OTC. Arrrrgh"
"Over the last few months I have been selling BTC to a group of local people. Now this is a don't ask don't tell group of people so I can't tell you exactly where and to whom the coins ultimately end up with but so far its been pretty painless. During this last week I maxed out my available coins both personally and "leased" from other members and they needed a lot more. Up until now, I have dealt with my core group of friends and been able to handle the requests, but they seem to be getting larger and more frequent. So now I'm looking into other methods for keeping a consistent storage or on-demand availability of coins. I have two plans available for those sitting on coins."
"This plan works as an ongoing commitment. You would send coins anytime to the address provided and you would earn interest on a daily basis. You can withdraw your balance at anytime, but I do request that you give me a couple hours to insure I have coverage for the next order. Interest payments are paid out ever 3 days until either you withdraw the funds or my local dealings dry up and I can no longer be profitable. This plan pays 1% per day."
"I've created my own custom management software that I've built to monitor deposits, withdraws and interest payments. As this gets bigger I'll build a front end for it so users can view and manage there account and maybe putting that domain btclending.com to good use." "I really don't have a max number, I'm talking with the buyers today to see what kind of volume they are looking for. But from pass conversations they need more than I've been able to provide."
"i think people will more likely be interested in whether or not we get our principle back Cheesy the interest payments would be a secondary consideration." "Agreed, otherwise it could be one big ponzi scheme."
"I did this with Pirate for quite a while and never had any issues whatsoever. My interest payments were timely and I was always able to withdraw according to our terms. I only quit using him because I liquidated a large percentage of my working capital. I look forward to reinvesting with him."
"As I said I would do, I'm here to indicate that I received my first interest payment today, exactly as promised. I also lent pirateat40 some more BTC."
"Between September 2011 and September 2012, Shavers’ Bitcoin Savings & Trust (BTCST) allegedly raised 764,000 bitcoins, worth roughly $4.5 million at the time (and over half a billion USD at current Bitcoin exchange rates), from clients that trusted him to invest the funds for them. These investors were promised returns of 7% per week, or 3,641% per year, claiming to employ market arbitrage strategies."
"This thread is locked until further notice." "I'll be in Las Vegas July 27th through July 29th with some of the biggest names in Bitcoin. If you're in the area drop by and we can all chat. Contact me for details if you're interested." "The interest rates are going to decrease substantially on August 1st."
"After much consideration, I’ve decided to close down Bitcoin Savings & Trust." "The decision was based on the general size and overall time required to manage the transactions. As the fund grew there were larger and larger coin movements which put strain on my reserve accounts and ultimately caused delays on withdraws and the inability to fund orders within my system. On the 14th I made a final attempt to relieve pressure off the system by reducing the rates I offered for deposits. In a perfect world this would allow me to hold more coins in reserve outside the system, but instead it only exponentially increased the amount of withdrawals overnight causing mass panic from many of my lenders."
"I’ve spoken with my clients over the last week and come to an agreement that would allow me to close down my operation within a week. Currently my reserve (operating wallets) are drained from fulfilling the withdraw spree that happened after the rate drop announcement. All withdraws at this point will be delayed until Monday when the shutdown process begins." "At this point I will no longer accept deposits. Any coins sent into the system as of now will be returned immediately."
"Starting Monday I’ll begin systematically closing and withdrawing accounts as coins are transferred. I don't expect the entire process to last longer than a week. The moment your account is closed you’ll receive your coins plus any interest accrued up to the hour it was sent."
"I’d like to thank all of my lenders and PPT operators that were a key element in making Bitcoin Savings & Trust a success. Bitcoin has grown a lot since I started this and want you to know that you were a vital part in helping it grow."
"In 2014 Shavers was arrested for running a bitcoin-related Ponzi scheme and was ordered to pay $40.7 million in fines and sentenced to one and half years in prison."
"Shavers, who was charged with one count of securities fraud and one count of wire fraud, faced up to 40 years in prison. Originally, he pled not guilty to fraud charges in March 2015. This decision was reversed in September of that year as part of a plea deal — thanks to this, his possible sentence was lowered to a maximum of 41 months."
Pirateat40 (Trendon Shavers) ran a scheme where he would supposedly invest people's bitcoin to earn more bitcoin, and conducted regular payouts for all participants as promised. This scheme continued for more than a year, before finally collapsing. He was later prosecuted for fraud and spent time in jail. Over half of participants lost money in his operation.
HOW COULD THIS HAVE BEEN PREVENTED?
The largest issue which allows such schemes to continue is the lack of visibility into the backing of funds. Through proving reserves and liabilities, a legitimate operation can give visibility into their backing. Something as simple as Trendon claimed could easily be verified periodically to confirm all assets were fully backed.
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