#ponzi schemes

[longwindedbore]

The purpose of this Ponzi scheme was to get the fund that manages your college savings or retirement savings to be required under NASDAQ buy the hyper inflated SpaceX stocks.

Musk ‘arranged’ for NASADAQ to ‘loosen’ its safety rules and fast-track this turkey into your funds in weeks instead of months.

Also loosen the rules that prevented Insiders from selling stock for half a year.

Because, this turkey’s price will crater in months.

[sweettntmag]

Bitconnect: The full history of crypto’s most infamous Ponzi scheme

Bitconnect was a US$2.4 billion crypto Ponzi scheme that collapsed in 2018 and remains one of the most consequential frauds in digital asset history. Launched during the 2017 cryptocurrency boom, Bitconnect promised a guaranteed 1 percent daily return through an alleged proprietary trading bot. The scheme expanded globally through aggressive affiliate marketing, YouTube promotion and staged…

Bitconnect: The full history of crypto’s most infamous Ponzi scheme

[dailyhistoryposts]

On This Day In History

April 3rd, 1882: Charles Ponzi, of the widespread Ponzi schemes, is born.

edit: March 3rd, my bad!

[bryanharryrombough]

Star Trek to boldly go straight into the garbage, start selling NFTs

Paramount has announced new Star Trek NFTs as part of a plan that will eventually involve Nickelodeon NFTs, too, which is just so, so cool

What better way to celebrate Gene Roddenberry's vision of a post-scarcity utopia than by buying into an artificial-scarcity ponzi scheme?

[gwydionmisha]

Bitcoins, Pigeons, and Russians: Three Ponzi Schemes You Need to Know About

[scriptaccountant]

I'm not sure whether this is better suited to you/economist, but I THINK you might be able to help me? I have an antagonist who's very wealthy. Has her own company, investments, on the board of other companies, properties, diversified assets, etc. But I want her to be left with basically none of that by the end, and I was wondering what the best way to drain her accounts/assets would be. Thanks!

Hi!

I actually dragged @scripteconomist away from exams long enough to discuss this. There are a few things that you are going to need to consider, but hopefully we have some options that might work for you.

First, how wealthy is she? There are levels to being rich that are sometimes difficult to conceptualize if you aren’t rich. I personally follow this adage regarding the difference between “rich” and “wealthy” “Rich people work for wealthy people.” That means, your CEOs, CFOs, etc are Rich, and people that own large corporations are Wealthy. Wealthy people don’t have to work for their money. But other people have different ways of defining the words. The reason I bring this up is, I did a quick google of “Millionaires who lost it all” and most of the results talk about professional athletes, musicians and lottery winners. Those are all people whose money depended on a short-lived source. If they mismanage it and spend it all, then there’s no source for new income (some musicians have a longer career than others, and can make a comeback, but it’s difficult for athletes to do the same). But a lot of those stories also talk about how they’ve rebounded since and what they are doing now. Maybe they aren’t worth the same amount, but many aren’t in poverty.

But if you consider people with generational wealth, that money is self-replicating. Their parents and grandparents and so on have already set up the structures needed for the money to continue. The people in the super wealthy tier tend to be from generational wealth (old money, if you like), though a lucky few have managed to get there in their own lifetimes. Now consider “losing it all” when talking about billions of dollars. How much is all? If you inherited 8 Billion and lost 4 Billion, you’re still very wealthy. So you need to consider, how much is she worth, how much does she actually have to lose in order to consider it “losing it all”? How low do you want her to be at the end? Does she literally only have the clothes on her back? Is she learning what it’s like to struggle to pay bills each month? Is she still pretty well off without having to worry as long as she manages her money, but no more buying yachts?

Second, how do you want her to lose the money? Is this something you want another character to be responsible for enacting? Do you want her to be the agent of her own downfall? Do you want it to be something out of anyone’s control?

In order to lose it all, she needs to lose three things:

her company

her personal assets (including shares in other companies)

her reputation (so that she can’t work back up from another company).

If she has her own company and is wealthy, she most likely has it set up as a corporation to limit her liability. That means that if the company has to liquidate to pay debtors, only the company assets can be touched and her personal assets are safe. So her liability is limited to what she put into the company and she is protected from losing more than that.

Out of anyone’s control: You say she’s well diversified. That’s definitely something that she would do. She would own stocks in different companies, different industries, and different areas. All of this lowers her risk of losing all her money. But there is also non-diversifiable risk, or market risk. This is the risk that the market as a whole will drop out in its best recreation of late 1929. This could happen from war, extreme natural disasters that hit a large number of major companies in different industries, alien invasion, and bubble situations like the build up to 1929 and 2008. This could make her lose her company. This could make some of the companies that she’s on the board of have to close. But some companies will rebound better than others and she might survive it. Also, unless she’s overextended herself by using personal loans to purchase the shares that plummet in worth, she’ll still have her personal, non-stock related, assets to fall back on. Of course, you could have the natural disaster/war/aliens destroy those as well. She’ll at least be hurting for awhile.

The agent of her own demise: She’s involved in some shady dealings. Maybe she embezzled, Maybe she ran a Ponzi scheme. Maybe she did insider trading. Maybe she made really bad decision for her company that causes it to fail. Maybe she did all of the above. Maybe she set up a Ponzi scheme to get money to pay for a new venture with her company based on faulty projections or just because she ignored what her advisors said and overextended herself. Then when the return on investment wasn’t what she expected, she embezzled from the other companies that she’s involved with and used information from being on the boards to perform insider trading both to try to rescue her company and pay off the people in her Ponzi scheme. But then she’s caught. The Ponzi scheme collapses because that’s what they do, the embezzlement and insider trading is found out and she’s in a load of trouble. Her company is already in trouble from the bad business move.

She’s now facing criminal and civil charges that compound so she can’t save it. The company is liquidated (it’s generally easier to find a buyer for the assets of a company and then pay the debts, even though it’s better for the current owner if they can sell the company as liabilities will be assumed as well, but let’s say she has to do the first).

Let’s look at the charges she’s facing:

Insider trading: 

Criminal penalties- up to 20 years in prison, up to $5M in fines per charge (if she traded as an individual; if the shares were traded under her corporation then up to $25M per charge). 

Civil penalties - up to 3 times the amount gained or loss avoided from the trade made with the information. She may also be banned from trading (which will stop her from rebounding once she’s out of prison).

Pyramid or Ponzi scheme: 

Criminal penalties - depend on where she lives. The US does not have a federal law covering these, but the FTC may push for prosecution as fraud. For reference, Madoff pled guilty to securities fraud, wire fraud, and mail fraud and was sentenced to 150 years in prison. 

Other examples of Ponzi schemes for research can be found on the link in this sentence.

Civil penalty - may have to pay restitution.

Embezzlement: 

Criminal penalties - there is a statute of limitations of 5 years. The penalties will vary depending on how much she stole, but the maximum rating is for over $400M and will likely include fines of at least $250K per charge and 20-30 years in prison (maybe more if multiple counts are brought). The exact penalties may vary by state. 

Civil penalties - restitution to victim(s). 

Here is some more information about embezzlement and some example cases for research. 

Here is a link to information about the US Federal laws for embezzlement including the different types. 

 As you can see, those combined could not only drain quite a bit of cash, but also land her with some pretty serious jail time even if she can manage plea bargains.

Brought down by someone else: Divorce and theft. Maybe combined. If she didn’t have a prenup, she could lose half of her worth in a divorce, depending on location (for example some states don’t consider assets from before the marriage to be marital property and divisible, in the past a married woman could not own property so it would all be her husband’s). If her ne’er do well spouse used her trust to empty her accounts, sell her company and stocks, move it to an offshore account not linked to them, and maybe even set her up for one of the above to get her in trouble legally but that’s not necessary, and then divorces her for half of whatever she has left.

For any of these that require selling the company, or liquidating it, you need to consider what type of company it is. Construction or property can change fortunes very quickly. Liquidating a retail company is easier because most of the assets will be in inventory that is fairly liquid. While liquidating a manufacturing company that has a lot of capital tied up in expensive and specialized machinery will be more difficult. It’s usually easier to find someone willing to buy the assets in a liquidation than to buy a company, so they may get more money selling the assets, especially if there has been a scandal tied to the company.

I hope this gives you some ideas and things to consider and places to start researching. Good luck!

Disclaimer

[mostlysignssomeportents]

The largest campaign finance violation in US history

I'm coming to DEFCON! On Aug 9, I'm emceeing the EFF POKER TOURNAMENT (noon at the Horseshoe Poker Room), and appearing on the BRICKED AND ABANDONED panel (5PM, LVCC - L1 - HW1–11–01). On Aug 10, I'm giving a keynote called "DISENSHITTIFY OR DIE! How hackers can seize the means of computation and build a new, good internet that is hardened against our asshole bosses' insatiable horniness for enshittification" (noon, LVCC - L1 - HW1–11–01).

Earlier this month, some of the richest men in Silicon Valley, led by Marc Andreesen and Ben Horowitz (the billionaire VCs behind Andreesen-Horowitz) announced that they would be backing Trump with endorsements and millions of dollars:

https://www.forbes.com/sites/dereksaul/2024/07/16/trump-lands-more-big-tech-backers-billionaire-venture-capitalist-andreessen-joins-wave-supporting-former-president/

Predictably, this drew a lot of ire, which Andreesen tried to diffuse by insisting that his support "doesn’t have anything to do with the big issues that people care about":

https://www.theverge.com/2024/7/24/24204706/marc-andreessen-ben-horowitz-a16z-trump-donations

In other words, the billionaires backing Trump weren't doing so because they supported the racism, the national abortion ban, the attacks on core human rights, etc. Those were merely tradeoffs that they were willing to make to get the parts of the Trump program they do support: more tax-cuts for the ultra-rich, and, of course, free rein to defraud normies with cryptocurrency Ponzi schemes.

Crypto isn't "money" – it is far too volatile to be a store of value, a unit of account, or a medium of exchange. You'd have to be nuts to get a crypto mortgage when all it takes is Elon Musk tweeting a couple emoji to make your monthly mortgage payment double.

A thing becomes moneylike when it can be used to pay off a bill for something you either must pay for, or strongly desire to pay for. The US dollar's moneylike property comes from the fact that hundreds of millions of people need dollars to pay off the IRS and their state tax bills, which means that they will trade labor and goods for dollars. Even people who don't pay US taxes will accept dollars, because they know they can use them to buy things from people who do have a nondiscretionary bill that can only be paid in dollars.

Dollars are also valuable because there are many important commodities that can only – or primarily – be purchased with them, like much of the world's oil supply. The fact that anyone who wants to buy oil has a strong need for dollars makes dollars valuable, because they will sell labor and goods to get dollars, not because they need dollars, but because they need oil.

There's almost nothing that can only be purchased with crypto. You can procure illegal goods and services in the mistaken belief that this transaction will be durably anonymous, and you can pay off ransomware creeps who have hijacked your personal files or all of your business's data:

https://locusmag.com/2022/09/cory-doctorow-moneylike/

Web3 was sold as a way to make the web more "decentralized," but it's best understood as an effort to make it impossible to use the web without paying crypto every time you click your mouse. If people need crypto to use the internet, then crypto whales will finally have a source of durable liquidity for the tokens they've hoarded:

https://pluralistic.net/2022/09/16/nondiscretionary-liabilities/#quatloos

The Web3 bubble was almost entirely down to the vast hype machine mobilized by Andreesen-Horowitz, who bet billions of dollars on the idea and almost single-handedly created the illusion of demand for crypto. For example, they arranged a $100m bribe to Kickstarter shareholders in exchange for Kickstarter pretending to integrate "blockchain" into its crowdfunding platform:

https://finance.yahoo.com/news/untold-story-kickstarter-crypto-hail-120000205.html

Kickstarter never ended up using the blockchain technology, because it was useless. Their shareholders just pocketed the $100m while the company weathered the waves of scorn from savvy tech users who understood that this was all a shuck.

Look hard enough at any crypto "success" and you'll discover a comparable scam. Remember NFTs, and the eye-popping sums that seemingly "everyone" was willing to pay for ugly JPEGs? That whole market was shot through with "wash-trading" – where you sell your asset to yourself and pretend that it was bought by a third party. It's a cheap – and illegal – way to convince people that something worthless is actually very valuable:

https://mailchi.mp/brianlivingston.com/034-2#free1

Even the books about crypto are scams. Chris Dixon's "bestseller" about the power of crypto, Read Write Own, got on the bestseller list through the publishing equivalent of wash-trading, where VCs with large investments in crypto bought up thousands of copies and shoved them on indifferent employees or just warehoused them:

https://pluralistic.net/2024/02/15/your-new-first-name/#that-dagger-tho

The fact that crypto trades were mostly the same bunch of grifters buying shitcoins from each other, while spending big on Superbowl ads, bribes to Kickstarter shareholders, and bulk-buys of mediocre business-books was bound to come out someday. In the meantime, though, the system worked: it convinced normies to gamble their life's savings on crypto, which they promptly lost (if you can't spot the sucker at the table, you're the sucker).

There's a name for this: it's called a "bezzle." John Kenneth Galbraith defined a "bezzle" as "the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it." All bezzles collapse eventually, but until they do, everyone feels better off. You think you're rich because you just bought a bunch of shitcoins after Matt Damon told you that "fortune favors the brave." Damon feels rich because he got a ton of cash to rope you into the con. Crypto.com feels rich because you took a bunch of your perfectly cromulent "fiat money" that can be used to buy anything and traded it in for shitcoins that can be used to buy nothing:

https://theintercept.com/2022/10/26/matt-damon-crypto-commercial/

Andreesen-Horowitz were masters of the bezzle. For them, the Web3 bet on an internet that you'd have to buy their shitcoins to use was always Plan B. Plan A was much more straightforward: they would back crypto companies and take part of their equity in huge quantities of shitcoins that they could sell to "unqualified investors" (normies) in an "initial coin offering." Normally, this would be illegal: a company can't offer stock to the general public until it's been through an SEC vetting process and "gone public" through an IPO. But (Andreesen-Horowitz argued) their companies' "initial coin offerings" existed in an unregulated grey zone where they could be traded for the life's savings of mom-and-pop investors who thought crypto was real because they heard that Kickstarter had adopted it, and there was a bestselling book about it, and Larry David and Matt Damon and Spike Lee told them it was the next big thing.

Crypto isn't so much a financial innovation as it is a financial obfuscation. "Fintech" is just a cynical synonym for "unregulated bank." Cryptocurrency enjoys a "byzantine premium" – that is, it's so larded with baffling technical nonsense that no one understands how it works, and they assume that anything they don't understand is probably incredibly sophisticated and great ("a pile of shit this big must have pony under it somewhere"):

https://pluralistic.net/2022/03/13/the-byzantine-premium/

There are two threats to the crypto bezzle: the first is that normies will wise up to the scam, and the second is that the government will put a stop to it. These are correlated risks: if the government treats crypto as a security (or worse, a scam), that will put severe limits on how shitcoins can be marketed to normies, which will staunch the influx of real money, so the sole liquidity will come from ransomware payments and transactions with tragically overconfident hitmen and drug dealers who think the blockchain is anonymous.

To keep the bezzle going, crypto scammers have spent the past two election cycles flooding both parties with cash. In the 2022 midterms, crypto money bankrolled primary challenges to Democrats by absolute cranks, like the "effective altruist" Carrick Flynn ("effective altruism" is a crypto-affiliated cult closely associated with the infamous scam-artist Sam Bankman-Fried). Sam Bankman-Fried's super PAC, "Protect Our Future," spent $10m on attack-ads against Flynn's primary opponent, the incumbent Andrea Salinas. Salinas trounced Flynn – who was an objectively very bad candidate who stood no chance of winning the general election – but only at the expense of most of the funds she raised from her grassroots, small-dollar donors.

Fighting off SBF's joke candidate meant that Salinas went into the general election with nearly empty coffers, and she barely squeaked out a win against a GOP nightmare candidate Mike Erickson – a millionaire Oxy trafficker, drunk driver, and philanderer who tricked his then-girlfriend by driving her to a fake abortion clinic and telling her that it was a real one:

https://pluralistic.net/2022/10/14/competitors-critics-customers/#billionaire-dilletantes

SBF is in prison, but there's no shortage of crypto millions for this election cycle. According to Molly White's "Follow the Crypto" tracker, crypto-affiliated PACs have raised $185m to influence the 2024 election – more than the entire energy sector:

https://www.followthecrypto.org/

As with everything "crypto," the cryptocurrency election corruption slushfund is a bezzle. The "Stand With Crypto PAC" claims to have the backing of 1.3 million "crypto advocates," and Reuters claims they have 440,000 backers. But 99% of the money claimed by Stand With Crypto was actually donated to "Fairshake" – a different PAC – and 90% of Fairshake's money comes from a handful of corporate donors:

https://www.citationneeded.news/issue-62/

Stand With Crypto – minus the Fairshake money it falsely claimed – has raised $13,690 since April. That money came from just seven donors, four of whom are employed by Coinbase, for whom Stand With Crypto is a stalking horse. Stand With Crypto has an affiliated group (also called "Stand With Crypto" because that is an extremely normal and forthright way to run a nonprofit!), which has raised millions – $1.49m. Of that $1.49m, 90% came from just four donors: three cryptocurrency companies, and the CEO of Coinbase.

There are plenty of crypto dollars for politicians to fight over, but there are virtually no crypto voters. 69-75% of Americans "view crypto negatively or distrust it":

https://www.pewresearch.org/short-reads/2023/04/10/majority-of-americans-arent-confident-in-the-safety-and-reliability-of-cryptocurrency/

When Trump keynotes the Bitcoin 2024 conference and promises to use public funds to buy $1b worth of cryptocoins, he isn't wooing voters, he's wooing dollars:

https://www.wired.com/story/donald-trump-strategic-bitcoin-stockpile-bitcoin-2024/

Wooing dollars, not crypto. Politicians aren't raising funds in crypto, because you can't buy ads or pay campaign staff with shitcoins. Remember: unless Andreesen-Horowitz manages to install Web3 crypto tollbooths all over the internet, the industries that accept crypto are ransomware, and technologically overconfident hit-men and drug-dealers. To win elections, you need dollars, which crypto hustlers get by convincing normies to give them real money in exchange for shitcoins, and they are only funding politicians who will make it easier to do that.

As a political matter, "crypto" is a shorthand for "allowing scammers to steal from working people," which makes it a very Republican issue. As Hamilton Nolan writes, "If the Republicans want to position themselves as the Party of Crypto, let them. It is similar to how they position themselves as The Party of Racism and the Party of Religious Zealots and the Party of Telling Lies about Election Fraud. These things actually reflect poorly on them, the Republicans":

https://www.hamiltonnolan.com/p/crypto-as-a-political-characteristic

But the Democrats – who are riding high on the news that Kamala Harris will be their candidate this fall – have decided that they want some of that crypto money, too. Even as crypto-skeptical Dems like Jamaal Bowman, Cori Bush, Sherrod Brown and Jon Tester see millions from crypto PACs flooding in to support their primary challengers and GOP opponents, a group of Dem politicians are promising to give the crypto industry whatever it wants, if they will only bribe Democratic candidates as well:

https://subscriber.politicopro.com/f/?id=00000190-f475-d94b-a79f-fc77c9400000

Kamala Harris – a genuinely popular candidate who has raised record-shattering sums from small-dollar donors representing millions of Americans – herself has called for a "reset" of the relationship between the crypto sector and the Dems:

https://archive.is/iYd1C

As Luke Goldstein writes in The American Prospect, sucking up to crypto scammers so they stop giving your opponents millions of dollars to run attack ads against you is a strategy with no end – you have to keep sucking up to the scam, otherwise the attack ads come out:

https://prospect.org/politics/2024-07-31-crypto-cash-affecting-democratic-races/

There's a whole menagerie of crypto billionaires behind this year's attempt to buy the American government – Andreesen and Horowitz, of course, but also the Winklevoss twins, and this guy, who says we're in the midst of a "civil war" and "anyone that votes against Trump can die in a fucking fire":

https://twitter.com/molly0xFFF/status/1813952816840597712/photo/1

But the real whale that's backstopping the crypto campaign spending is Coinbase, through its Fairshake crypto PAC. Coinbase has donated $45,500,000 to Fairshake, which is a lot:

https://www.coinbase.com/blog/how-to-get-regulatory-clarity-for-crypto

But $45.5m isn't merely a large campaign contribution: it appears that $25m of that is the largest the largest illegal campaign contribution by a federal contractor in history, "by far," a fact that was sleuthed out by Molly White:

https://www.citationneeded.news/coinbase-campaign-finance-violation/

At issue is the fact that Coinbase is bidding to be a US federal contractor: specifically, they want to manage the crypto wallets that US federal cops keep seizing from crime kingpins. Once Coinbase threw its hat into the federal contracting ring, it disqualified itself from donating to politicians or funding PACs:

Campaign finance law prohibits federal government contractors from making contributions, or promising to make contributions, to political entities including super PACs like Fairshake.

https://www.fec.gov/help-candidates-and-committees/federal-government-contractors/

Previous to this, the largest ever illegal campaign contribution by a federal contractor appears to be Marathon Petroleum Company's 2022 bribe to GOP House and Senate super PACs, a mere $1m, only 4% of Coinbase's bribe.

I'm with Nolan on this one. Let the GOP chase millions from billionaires everyone hates who expect them to promote a scam that everyone mistrusts. The Dems have finally found a candidate that people are excited about, and they're awash in money thanks to small amounts contributed by everyday Americans. As AOC put it:

They've got money, but we've got people. Dollar bills don't vote. People vote.

https://www.popsugar.com/news/alexandria-ocasio-cortez-dnc-headquarters-climate-speech-47986992

Support me this summer on the Clarion Write-A-Thon and help raise money for the Clarion Science Fiction and Fantasy Writers' Workshop!

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/07/31/greater-fools/#coinbased

[gwydionmisha]

“Incalculable” Damage: How a “We Buy Ugly Houses” Franchise Left a Trail of Financial Wreckage Across Texas

Charles Carrier is accused of orchestrating a yearslong Ponzi scheme, bilking tens of millions of dollars from both wealthy investors and ol