July 23, 2013 2 min read

Another first for Bitcoin, but an ignominious one: The Securities and Exchange Commission has filed its first fraud lawsuit involving the virtual currency, claiming it was used in a Ponzi scheme.

The SEC filed suit against Trendon T. Shavers, founder and owner of Bitcoin Savings and Trust, saying he raised more than 700,000 BTC from 66 investors. According to the SEC’s suit, that amounted to $4.5 million in cash based on the daily Bitcoin price at the time, according to the SEC.

Shavers was supposed to be trading Bitcoin online for dollars and promised a 7 percent return for investors. Instead, he simply used the new money he was bringing in to buy out earlier investors.

In addition to the lawsuit, the SEC sent out an investor alert, warning about online fraud scams tied to Bitcoin. The agency, according to the alert is “concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments and transactions.”

The SEC also took the step of asserting its jurisdiction over virtual-currency trading. “Any investment in securities in the United States remains subject to the jurisdiction of the SEC, regardless of whether the investment is made in U.S. dollars or a virtual currency,” the agency said.

Related: A Look at Bitcoin Currency