The SEC alleges that Trendon Shavers, who is the founder and operator of Bitcoin Savings and Trust (BTCST), promised investors up to seven percent weekly interest based on BTCST's bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy bitcoin "off the radar".

Shavers raised at least 700,000 bitcoin in BTCST investments, which amounted to more than $4.5 million based on the average price of bitcoin in 2011 and 2012 when the investments were offered and sold. Today the value of 700,000 bitcoin exceeds $60 million.

He used the cash to cover withdrawals from the fund and also diverted investors' bitcoin for day trading in his own account and to cover his personal expenses.

Andrew Calamari, director of the SEC's New York regional office, says: "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. Shavers preyed on investors in an online forum by claiming his investments carried no risk and huge profits for them while his true intentions were rooted in nothing more than personal greed."

The SEC has issued an alert warning investors about the dangers of potential investment scams involving virtual currencies promoted through the Internet.

Lori Schock, director of the SEC's Office of Investor Education and Advocacy, says: "Ponzi scheme operators often claim to have a tie to a new and emerging technology as a lure to potential victims. 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."