By Sarah N. Lynch

WASHINGTON (Reuters) - A Texas man ran a Ponzi scheme through the virtual online money system called Bitcoin, pocketing some of his investors' proceeds for his personal expenses and gambling, securities regulators charged on Tuesday, warning that the rise of such digital currencies could lead to more frauds.

The Securities and Exchange Commission said in a statement that Trendon Shavers, 30, of McKinney, Texas, and his company Bitcoin Savings & Trust used money from new investors to cover withdrawals by other investors and his own expenses.

He raised at least 700,000 Bitcoin, or $4.5 million, from investors in multiple states, the SEC said.

Attempts to reach Shavers or find a representative were unsuccessful. The agency is moving to freeze Shavers' assets and seeking other relief, including financial penalties.

Bitcoin, which is not managed by any one company or government, is a relatively new phenomenon that exists through an open-source software program. Users can buy Bitcoin through exchanges that convert real money into the virtual currency.

In its statement about the Shavers case, the SEC on Tuesday also said it issued an alert warning investors to be on the lookout for scams involving virtual currencies.

"We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes," the SEC said.

Less regulatory oversight and supposed greater privacy of virtual currencies compared with conventional ones could make virtual currencies more attractive to scammers, the agency said.

The U.S. government in May seized two accounts linked to a large Bitcoin operator, Tokyo-based exchange Mt. Gox.

Also in May, U.S. prosecutors filed an indictment against the operators of digital currency exchange Liberty Reserve, accusing the Costa Rica-based company of helping criminals around the world to launder more than $6 billion in illicit funds.

Bitcoin grabbed headlines in early July when Cameron and Tyler Winklevoss, the twins famous for having alleged that Mark Zuckerberg stole the idea that became Facebook Inc, applied to the SEC to launch a Bitcoin-tracking exchange-traded product (ETP) called the Winklevoss Bitcoin Trust.

It is unclear whether the SEC's concerns about Bitcoin laid out in its investor alert on Tuesday could pose a problem for that offering.

The application is currently being reviewed by the SEC's Corporation Finance Division. That division reviews applications to ensure they meet SEC filing guidelines but cannot reject one based on the offering's merits.

However, once an exchange applies to list the ETP, another division in the SEC that oversees trading and markets can explore whether a Bitcoin product is viable or potentially vulnerable to manipulation.

The price of Bitcoin rose slightly to $96.50 during early Tuesday afternoon trading, after ending Monday at midnight at $93.

(Reporting by Sarah N. Lynch; Additional reporting by David Gaffen in New York; Editing by Karey Van Hall, Jeffrey Benkoe, Gary Hill)