Some promises are too good to be true. The Securities and Exchange Commission has charged a Texas man with operating an illegal Ponzi scheme using the virtual currency Bitcoin in place of dollars. Trendon T. Shavers took in 700,000 Bitcoins from investors, the SEC alleges, through his unregistered fund Bitcoin Savings & Trust while operating with the ironic alias "pirateat40." The Bitcoins were worth $4.5 million at the time but would be worth $60 million on the market today due to the virtual currency's appreciation.

Shavers told investors he could make them a 7 percent return on their investment by arbitraging the currency, but the SEC claims he never made a trade. Instead, he used the money from new investors to pay dividends to previous investors, the definition of a Ponzi scheme. This allowed him to keep up the appearance of impossibly high returns, the SEC says. There was plenty of suspicion around BS&T and other so-called "high-yield investment programs," but greed was enough to convince some people to buy in. In August 2012, BS&T stopped paying its investors and then abruptly shut down.

A number of Bitcoin businesses have cost users their deposits or investments due to technical problems, hacker attacks, and fraud. Although some such shutdowns have resulted in lawsuits, this is the first time that the government has intervened on behalf of users who lost money in 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," Andrew M. Calamari, director of the SEC’s New York office, said in a statement.

The move makes the SEC the latest in a string of federal agencies that have recognized that Bitcoin is worth more than Monopoly money. The Drug Enforcement Administration recently confiscated 11.02 Bitcoins, worth about $814.22, as part of a bust in South Carolina. In May, a division of the Treasury Department issued guidance interpreting the law to mean that certain types of Bitcoin businesses must register with the federal government as "money service businesses." Some in the Bitcoin community resent this government intrusion, while others consider it validation for the young e-currency.

If guilty, it looks like Shavers didn't make off as well as it might seem — making payouts to all those investors really cuts into one's profits. According to the SEC, Shavers paid out 507,148 of the Bitcoins in investor dividends in order to keep up the appearance of outrageous profits, enticing his investors to evangelize and come back for more. The SEC says his net proceeds were just $164,758.

Shavers is being charged with violating securities laws by publicly advertising and selling investments and defrauding investors. The SEC is seeking a court order to freeze his assets and the assets of BS&T. The agency also released a warning about Ponzi scams using virtual currencies.

The Bitcoin Foundation, a nonprofit advocacy group, released a statement condemning BS&T as "wrong and harmful to the Bitcoin community."