Curtailing Ponzi schemes and holding those responsible for these scams accountable is a vital component of the SEC's enforcement program.
Since fiscal year 2010, the SEC has brought more than 100 enforcement actions against nearly 200 individuals and 250 entities for carrying out Ponzi schemes.1 In these actions, more than 65 individuals have been barred from working in the securities industry. The SEC also has worked closely with the U.S. Department of Justice and other criminal authorities on parallel criminal and civil proceedings against Ponzi scheme operations.
A Ponzi scheme is an investment fraud that involves the
payment of purported returns to existing investors from
funds contributed by new investors. Ponzi scheme
organizers often solicit new investors by promising to
invest funds in opportunities claimed to generate high
returns with little or no risk. With little or no
legitimate earnings, Ponzi schemes require a constant flow
of money from new investors to continue. Ponzi schemes
inevitably collapse, most often when it becomes difficult
to recruit new investors or when a large number of
investors ask for their funds to be returned.
Surely this isn't an "investment fraud" if it is completely honest about how it works. I wouldn't count on the SEC being reasonable about that though.
Any lawyers here want to give an opinion on whether - from a legal perspective - this is a Ponzi scheme or a gambling site? And if it's a Ponzi scheme, are the people participating complicit in a crime?
Just because it calls itself a Ponzi scheme doesn't make it one - is it fraud when the scheme is openly labelled as such? OTOH I can see some people arguing it's not that clear that the scheme is unsustainable without further thought, research, or existing knowledge of pyramid schemes, and that it entails an unstated high element of risk, so in that sense it may be misleading.
I'm trying to work out if this is some grand statement on the similarities of Bitcoin to a Ponzi scheme in the way it's deflationary, or just a quick way for someone to make a few BTC. Maybe it's designed as a way to teach people about Ponzi schemes?
Got to say, I pity the person who eventually deposits too much money at once, causing the payments to pause while they build up enough to cover his large deposit, in turn causing everyone else to think that the money has stopped paying out and causing no further money to be deposited. That seems like the likely end of this eventually...
It's less of a statement about bitcoin as a statement about people. It shows that people will willingly deposit money into a scheme that they know is broken.
Just like with Bitcoin Savings and Trust, people essentially knew it was a ponzi scheme but they still deposited 263024 BTC. It was offering 7% a week which is 3373% a year. There are also debates about whether the people who profited are morally obligated to send their profits to the people who lost money. Are the people who profited considered to have stolen from the people who lost?
Even if it's not one person depositing a large amount, the backlog must grow larger and larger as time continues, this site actually has to grow exponentially to keep payout times constant.
IMO, this was built to demonstrate one of the unique characteristics of Bitcoin. The ability to track transactions linked to addresses not owned by you, in this case, lets all participants see in realtime whether the owners are living up to their promises. Had Bernie Madoff used Bitcoin, his reign would have been over in a few minutes.
This makes me wonder if a bank could operate with Bitcoins. Not everyone would withdraw the money at once and there would be a way of publicly verifying the degree that they're leveraged. If the bank wanted to lend out part or all of a person's money, it could require their approval such that both them and the bank get a percentage of the interest rate the borrower pays. So many questions.
Should have known! Like ten minutes before I expected 1.2x to be gathered and my payout to be done, the site reports "The experiment is over." Come on guys, just let it run. I would have accepted it if it just 'died of natural causes' and I lost all I put in (which is not much, 0.03); that was my gamble. Not that you'd pull the plug.
Somehow their pulling the plug just really bothers me much more than losing it would have been. Especially because at the rate at which it was going, payout was more or less ensured (300btc * 1.2 = 360. They quit 16 coins short). Right now, two hours after they supposedly would pay everyone back, I still got nothing.
I'm curious - anyone know what happened to cause the (inevitable) end?
From what I can tell, it doesn't seem to be the lack of new interest/money. Possibilities I can think of:
- Author got scared (of legal repercussions)
- Author got greedy (pocketing much of the last deposits)
- For some reason (research?) it was intended from the beginning to only run to a certain point
Overall with 344 BTC recieved, if everything was paid out as expected, the site operator would lose around 69 bitcoins.
As it stands, the address still has ~20 bitcoins left in the wallet, but obviously owes a lot more than that even if it were to pay the remaining payments 1:1 rather than 1:1.2.
> We will pay back everyone we can. We are not making money from this.
Paying people back can be done instantly. Adding 20% needed a wait. If they stopped the experiment an hour ago, I'd say my coins should have returned by now :(
No one finds this repulsive? People will lose money to this. Yes, they are dumb, yes it is obvious. But those who participate are still morally complicit. Enabling others who suffer from serious issues (addiction, gambling) seems like a pretty shitty thing to do.
I deposited the minimum just to give it a go (80c... Can't hurt?) and the Ponzi sent me back an absurdly larger amount of bitcoins... Not quite sure what happened, but hey. When this hit the top of Hacker News the site wasn't loading any bitcoin stats or such so I feel the load must have had something to do with it possibly. (That or I just got double spent on, which would be a real sneaky trick to get a user to send back the 'perceived' amount, but coming out of their pocket.
This is personally why I wouldn't trust any programs to handle currency so openly on the web. The inability of the average user to stress test or put proper testing through applications can cause quite a fault. Having experienced the methods that banks undergo for software cycles there is a tiny chance someone would have the resources to properly engineer something so fragile (relative to money) properly.
Because of this I would assume the main reason the author actually shut the site down (or at least so suddenly) was because of scaling technical issues.
Ponzi scheme is ok if you are in at the beginning of the scheme. That's what makes this interesting - it's basically a bet that other people will also believe this will go on.
So how do the creators of this make money from it?
The best solution is one that doesn't infringe on the "correctness" of the game, and it's a simple one. Simply play the game yourself. Send money in, let the system send money back. Do it a lot. Many small transactions. You will never lose, because when the game ends you are the owner of the actual account and won't get screwed like everyone else.
Right? So, perhaps many of the transactions we're seeing go into this are suspect and the total amounts aren't to quite be trusted?
If you think Ponzi schemes won't work if you tell people that they're a ponzi scheme, MMM-2011 was a Ponzi scheme in Russia that hooked people despite nakedly advertising that it was a scam: http://www.bloomberg.com/news/2012-06-06/is-global-finance-a...
Why bother with a faceless ponzi scheme? Send your bitcoin directly to me, and I will invest it by hand, making sure to maximize your return: 1HbNxRhrv5Jocr7Q9ZqbbqCwuNNy4UsR77
Looks like the operator had seconds thoughts--or plain got scared. I was interested in how trackable he is.
The domain is registered under a fake name and DNS is from Namecheap. It's a funny whois entry, lacking all the usual boilerplate, so I'm not entirely sure it's Namecheap; some sort of reseller? Doesn't match what I see from Namecheap itself, but Namecheap does take bitcoin now, so it seems plausible.
Hosting is libertyvps.net, a bitcoin-paid host. Hosted "offshore"; company appears to be in US.
If a US authority leans on libertyvps, they can get an email and blockchain address, and maybe an IP. Tracing the person would be hard if Tor was used for setting up (and using) the email and all host access, and a decently anonymous acquisition of the bitcoin.
A US authority could also get to Namecheap. Using the registrar safely requires about the same precautions, notably access via Tor and acquiring the payment BTC (or pre-paid card) in a non-traceable manner. Done right, they could shut the domain down, but not find the person.
Anyway, looks like the top-level bases were covered. But there's a lot of links in the chain. Perhaps the operator got nervous that he didn't cover all of them--and it only takes one. (Against a determined LE agency with jurisdiction or no scruples.)
This is almost perfect except for not including a warning:
"Warning, if people stop depositing money, you won't get 120% back, and you could lose all your money."
Also, it seems like the person running the site is not taking a cut. If that's right, he's not making a profit, and he's less likely to get in trouble when things collapse.
[+] [-] mmaunder|12 years ago|reply
Ponzi Scheme Enforcement Actions
Curtailing Ponzi schemes and holding those responsible for these scams accountable is a vital component of the SEC's enforcement program.
Since fiscal year 2010, the SEC has brought more than 100 enforcement actions against nearly 200 individuals and 250 entities for carrying out Ponzi schemes.1 In these actions, more than 65 individuals have been barred from working in the securities industry. The SEC also has worked closely with the U.S. Department of Justice and other criminal authorities on parallel criminal and civil proceedings against Ponzi scheme operations.
snip
Source: http://www.sec.gov/spotlight/enf-actions-ponzi.shtml
Keep in mind that BTC or virtual money is just another asset class.
[+] [-] gburt|12 years ago|reply
[+] [-] ryanjshaw|12 years ago|reply
Just because it calls itself a Ponzi scheme doesn't make it one - is it fraud when the scheme is openly labelled as such? OTOH I can see some people arguing it's not that clear that the scheme is unsustainable without further thought, research, or existing knowledge of pyramid schemes, and that it entails an unstated high element of risk, so in that sense it may be misleading.
[+] [-] bernardom|12 years ago|reply
[+] [-] RyanZAG|12 years ago|reply
Got to say, I pity the person who eventually deposits too much money at once, causing the payments to pause while they build up enough to cover his large deposit, in turn causing everyone else to think that the money has stopped paying out and causing no further money to be deposited. That seems like the likely end of this eventually...
[+] [-] Buge|12 years ago|reply
Just like with Bitcoin Savings and Trust, people essentially knew it was a ponzi scheme but they still deposited 263024 BTC. It was offering 7% a week which is 3373% a year. There are also debates about whether the people who profited are morally obligated to send their profits to the people who lost money. Are the people who profited considered to have stolen from the people who lost?
[+] [-] eterm|12 years ago|reply
[+] [-] downandout|12 years ago|reply
[+] [-] 00rion|12 years ago|reply
[+] [-] lucb1e|12 years ago|reply
Somehow their pulling the plug just really bothers me much more than losing it would have been. Especially because at the rate at which it was going, payout was more or less ensured (300btc * 1.2 = 360. They quit 16 coins short). Right now, two hours after they supposedly would pay everyone back, I still got nothing.
[+] [-] acchow|12 years ago|reply
I think you misunderstand how ponzi schemes work.
[+] [-] daeken|12 years ago|reply
Also, where does it say the experiment has ended? I don't see that on the page, and the chat is still lively. [Edit: Now I see that]
[+] [-] FiloSottile|12 years ago|reply
https://blockchain.info/address/14ji9KmegNHhTchf4ftkt3J1ywmi...
And, they seem to be paying again, so there's still hope. Obviously the (half) shutdown (half) stopped the inbound flood, so there was damage done.
[+] [-] FiloSottile|12 years ago|reply
[+] [-] curiousgeorgio|12 years ago|reply
- Author got scared (of legal repercussions)
- Author got greedy (pocketing much of the last deposits)
- For some reason (research?) it was intended from the beginning to only run to a certain point
- Technical scaling issues
Anyone know?
[+] [-] eterm|12 years ago|reply
Money was still flooding in until around 22:55.
Overall with 344 BTC recieved, if everything was paid out as expected, the site operator would lose around 69 bitcoins.
As it stands, the address still has ~20 bitcoins left in the wallet, but obviously owes a lot more than that even if it were to pay the remaining payments 1:1 rather than 1:1.2.
[+] [-] FiloSottile|12 years ago|reply
Paybacks seem to have halted https://blockchain.info/address/1ponziUjuCVdB167ZmTWH48AURW1...
[+] [-] galvin|12 years ago|reply
Edit:
With numbers: http://webcache.googleusercontent.com/search?q=cache:http://...
[+] [-] 3rd3|12 years ago|reply
[+] [-] utuxia|12 years ago|reply
[+] [-] lucb1e|12 years ago|reply
Paying people back can be done instantly. Adding 20% needed a wait. If they stopped the experiment an hour ago, I'd say my coins should have returned by now :(
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] 1Ponzi|12 years ago|reply
[+] [-] runn1ng|12 years ago|reply
https://blockchain.info/address/1ponziUjuCVdB167ZmTWH48AURW1...
plus
https://blockchain.info/address/14ji9KmegNHhTchf4ftkt3J1ywmi...
their "debt" - meaning, what other people have to bring into the system - is their balance + 20%. Right now, their debt is about 42 bitcoin.
[+] [-] eterm|12 years ago|reply
(Or perhaps that's what you meant?)
[+] [-] dwaltrip|12 years ago|reply
[+] [-] legojoey17|12 years ago|reply
This is personally why I wouldn't trust any programs to handle currency so openly on the web. The inability of the average user to stress test or put proper testing through applications can cause quite a fault. Having experienced the methods that banks undergo for software cycles there is a tiny chance someone would have the resources to properly engineer something so fragile (relative to money) properly.
Because of this I would assume the main reason the author actually shut the site down (or at least so suddenly) was because of scaling technical issues.
[+] [-] runn1ng|12 years ago|reply
[+] [-] mikkom|12 years ago|reply
[+] [-] ryanskidmore|12 years ago|reply
Deposited 0.05859407 BTC ( https://blockchain.info/tx/c5411ae7ad41d6dab5dd879c158cb81f0... )
Recieved 0.0599 BTC back ( https://blockchain.info/tx/ef7f32df518dabb104812ea4a12719026... )
1.2 * 0.05859407 = 0.070312884 BTC
So, somebody owes me 0.010412884 BTC
[+] [-] datphp|12 years ago|reply
[+] [-] negamax|12 years ago|reply
[+] [-] udfalkso|12 years ago|reply
The best solution is one that doesn't infringe on the "correctness" of the game, and it's a simple one. Simply play the game yourself. Send money in, let the system send money back. Do it a lot. Many small transactions. You will never lose, because when the game ends you are the owner of the actual account and won't get screwed like everyone else.
Right? So, perhaps many of the transactions we're seeing go into this are suspect and the total amounts aren't to quite be trusted?
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] judk|12 years ago|reply
[+] [-] shalmanese|12 years ago|reply
[+] [-] sashazykov|12 years ago|reply
[+] [-] sashazykov|12 years ago|reply
Income: 751.63949374 btc Deposits: 692.04538439 btc Donations (ads): 59.59410935 btc Expenditure: 748.05864780 btc Withdrawals: 739.21264780 btc
[+] [-] dclara|12 years ago|reply
I copy-pasted from the site.
BTW, any pyramid scheme is bad and should be prohibited, right?
But the site is cool though.
[+] [-] tommorris|12 years ago|reply
[+] [-] sillysaurus2|12 years ago|reply
https://blockchain.info/address/1Gh2tRaqaPWFbQVabVD9rPsN1nm9...
https://blockchain.info/address/1BYbqzLvAN9PCC4LqNPPG2dHSyTn...
I'm going to watch and see what happens to them. If they don't lose their 1 BTC, then that's at least slightly interesting.
EDIT: It's been more than an hour; no repayment yet.
[+] [-] tobz|12 years ago|reply
This is totally legit. Seriously.
[+] [-] jaekwon|12 years ago|reply
I expect you to honor your word.
Return address: 1JEGu8qiaKbLgheAWCjRkeZNyEqhhaFVY3
[+] [-] judk|12 years ago|reply
[+] [-] jccooper|12 years ago|reply
The domain is registered under a fake name and DNS is from Namecheap. It's a funny whois entry, lacking all the usual boilerplate, so I'm not entirely sure it's Namecheap; some sort of reseller? Doesn't match what I see from Namecheap itself, but Namecheap does take bitcoin now, so it seems plausible.
Hosting is libertyvps.net, a bitcoin-paid host. Hosted "offshore"; company appears to be in US.
If a US authority leans on libertyvps, they can get an email and blockchain address, and maybe an IP. Tracing the person would be hard if Tor was used for setting up (and using) the email and all host access, and a decently anonymous acquisition of the bitcoin.
A US authority could also get to Namecheap. Using the registrar safely requires about the same precautions, notably access via Tor and acquiring the payment BTC (or pre-paid card) in a non-traceable manner. Done right, they could shut the domain down, but not find the person.
Anyway, looks like the top-level bases were covered. But there's a lot of links in the chain. Perhaps the operator got nervous that he didn't cover all of them--and it only takes one. (Against a determined LE agency with jurisdiction or no scruples.)
[+] [-] Kiro|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] dror|12 years ago|reply
"Warning, if people stop depositing money, you won't get 120% back, and you could lose all your money."
Also, it seems like the person running the site is not taking a cut. If that's right, he's not making a profit, and he's less likely to get in trouble when things collapse.
[+] [-] judk|12 years ago|reply
[+] [-] coherentpony|12 years ago|reply