A Texas man who ran a firm that claimed to make virtual currency-based investments was accused of masterminding a $4.5 million Ponzi scheme in what U.S. prosecutors said was a first-of-its-kind case tied to bitcoins.

Trendon Shavers, founder of Bitcoin Savings and Trust, raised at least 764,000 bitcoins by promising investors a return of as much as 3,641 percent, prosecutors said. Instead, he used bitcoins from new investors to cover payments owed to earlier clients, while also tapping into the currency to pay for his own Las Vegas gambling and spa treatments, they said.

At the peak of his scheme in 2011 and 2012, Shavers held about 7 percent of all bitcoins in circulation, they said.

Shavers managed to combine financial and cyber-fraud into a bitcoin Ponzi scheme that offered absurdly high interest payments and ultimately cheated his investors, U.S. Attorney Preet Bharara in Manhattan said in a statement today.

Shaverss arrest comes as the U.S. intensifies its scrutiny of bitcoins. Prosecutors last year charged Ross William Ulbricht with running the $1.2 billion online bazaar called Silk Road in which drug dealers used the digital currency to buy heroin, phony passports and hacking services. He denies wrongdoing. Today, Bharara accused another man, Blake Benthall, with operating a virtually identical site called Silk Road 2.0.

Shavers, 32, was arrested today at his home in McKinney, Texas, by Federal Bureau of Investigation agents. Hes charged with securities fraud and wire fraud, which carry maximum prison sentences of 20 years. Hes scheduled to appear in federal court in Sherman, Texas.

In September, Shavers and Bitcoin Savings were fined $40.6 million in a civil suit by the U.S. Securities and Exchange Commission. The case was the first to determine whether the SEC had authority to regulate transactions in virtual currency.

According to prosecutors, Shavers, using the name pirateat40, solicited investments in his company on Bitcoin Forum, an online site, by offering weekly interest of as much as 7 percent. Those lending the firm bitcoins were told they could withdraw the investments at any time, prosecutors said.

Shavers told investors their bitcoins would be used to support a market-arbitrage strategy that included lending them, trading them on online exchanges and selling them locally in private transactions, according to the U.S.

Shavers largely failed to execute the investment strategy, prosecutors said. Rather, he used new bitcoins to cover interest payments and meet investor withdrawal requests, Bharara said. He also used investor funds for day trading in his own account on a bitcoin-currency exchange and exchanged bitcoins into U.S. currency that paid personal expenses such as gambling and a $1,000 steakhouse meal.

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Bitcoin Firm Head Charged in First-of-Kind Ponzi Case