There's your red flags right there.
The top 500 companies by market cap don't do much better than 6-7% annually on average.
I wouldn't say quite that low, even S&P averages are often higher than that.
But 48% monthly is going to be something like a >1000% yearly interest rate. You really don't get much more of a dead giveaway than that, at that point you're either a fool or you're gambling and hoping you get out before a greater fool does.
If so it'd be a very hard crime to prosecute as unless you were working for them or something it's very hard to prove you aren't just another victim.
A Ponzi scheme is when it's an investment vehicle (i.e. hedge fund) that provides returns to older investors through capital acquired from newer investors. In this case, by contrast, it's overhyping (to the point of fraud) a publicly traded security in hopes of rallying some investors to buy in, which increases the price, further validating the potential and convincing more investors to buy in.
Merely participating through buying in a Pump & Dump process is completely legal; it only becomes illegal if you're the party using fraudulent information to increase the value of the security.
Isn't that exactly what they did?
From the Article:
> Pincoin was particularly unique in that it offered bonuses for bringing other people into the program, a tactic that might sound familiar. The scammers paid out in cash until January when they began sending iFan tokens.
Pump and Dumps make their money by selling the asset once it's price has been inflated. In this case, the money was made throughout the whole ICO by fraudulently selling a security.
>The company first ran the Pincoin ICO, promising constant returns to investors
>Investors have been told that they would enjoy a profit rate of 48 percent a month from their initial investment, and recoup all investments after four months.
This really seems like a mess of illegality either way haha.
> Pincoin was particularly unique in that it offered bonuses for bringing other people into the program, a tactic that might sound familiar. The scammers paid out in cash until January when they began sending iFan tokens. Then, last month, the team vacated their fancy offices leaving only an oddly well-made – if incomplete – website in its wake.
Really? Which crime exactly?
Take something like this, for instance:
What is the crime?
What Charles Ponzi did, and what has come to characterize Ponzi schemes today, is fraud. He made investors think that they were investing in something tradable (stamp coupons) when he actually only ever paid the returns using other investors' money, and it was able to go on for so long because most people simply reinvested their returns on the basis that they thought it was a sustainable investment.
This dynamic doesn't exist without fraud. No one is going to invest in ponzischeme.io on any other basis than exactly what it is, betting to get in early and to cash in their returns before everyone else does.
That said, if I was the world dictator, the ponzischeme.io guys would be in a labor camp, where they would be forced to do meaningful work.
>>> 100*1.48**12
11044.360771961152
I think it's actually 1.6 trillion
Past performance is not an indication of future.
Edit: Ran a Ponzi scheme (promised 12% p.a.) from the 1970s til 2008. $64.8 billion of damage.
They can default. Twino is a Latvian LLC [1] that walks back its “guarantee” in section 7.4 of their User Agreement:
“TWINO shall not be held liable neither by the Investor, nor by the Assignee, or their legal successors or heirs, or any Third Parties in the event that the Loan Agreement is not performed by the Borrower completely or in any part thereof and if the Claim is not repaid and settled.”
If you think you have an investment with “no risk about performance,” you should not be investing your own money.
[1] https://www.twino.eu/ws/public/user-agreement-stream?lang=en
It does require asking intelligent questions. Like what has been the historic default rate amongst TWINO’s borrowers? Is the borrower quality for recent cohorts higher or lower than for earlier cohorts? How might one enforce their claims in a Latvian court? Cryptocurrency gamblers don’t do this.
If you’re earning 7% in U.S. dollars or Euros and not reading and thoroughly understanding the prospectus, you’re being a chump. (Not making specific claims regarding TWINO. Seven percent may be reasonable compensation for the risk involved. But claiming there is “no risk about performance” is absurd.)
Their highest rated loans (11-13%) are guaranteed by them; that's quite explicit. The end-borrower default-rate is pretty low which is why they can do it.
Let's say you buy 100 $100 loans at 7%. You expect to earn back your $10,000 of principal plus $700 of interest. If 10% of your bonds default, you get back $9,000 of principal and $630 of interest. That's a 4% loss on principal.
TWINO advertises it will buy back defaulting loans at face value; if they pay out, you earn $10,700 irrespectively. (I'll ignore that their Terms of Use appear to explicitly refute this guarantee [1].)
But what if they don't pay? Do they have cash on hand to pay if 10% of loans issued through their platform default? What about 50%? (This happened in the financial crisis. People thought they had "no risk about performance" because someone guaranteed their bets.)
This is why understanding the background default rate, whether the credit quality of new borrowers is worse than old borrowers, and TWINO's cash position are important. If the whole company defaults and borrowers default enough, you will underperform (a) expectations, (b) a risk-free security like a U.S. Treasury and (c) even straight cash.
TL; DR TWINO is risky. Why do you think they're selling the loans to you, instead of banks or hedge funds or sophisticated investors?
> You are calling the risk of the whole company defaulting "performance" and that's what I disagree with
See the above. If the company defaults your guarantor vanishes. Now you're directly exposed to the credit of your borrowers. (You'll also have to enforce your claims under Latvian law. Be ready to find and pay a Latvian lawyer.)
[1] https://www.twino.eu/ws/public/user-agreement-stream?lang=en
The risk is not about "performance" but the company being fraudulent or defaulting, in which can you lose everything.
I mean I would question this. Of course that's true in a good economy but it's not true at all in a bad economy. To invest in this I think you need to ask what actually happens if there is a downturn.
There is no free money in finance.
There can be free money in the sense that a strategy can beat the market at a similar or lower level of risk. The "cost" for this is in personnel and infrastructure capital.
They have a big sailing ship and an (obviously unpleasant) guy in New York got it impounded in West-Africa a few years back (purely from a sailor's perspective).
Argentina has basically turned defaulting into a sport [1].
[1] https://en.m.wikipedia.org/wiki/Argentine_debt_restructuring
Anyone lending money to Argentina does so knowing their money is 50% not coming back.
That's actually pretty achievable using market neutral strategies. Considerably higher is also achievable, you just can't really access them unless you have a lot of capital. However, 6-7% per month would be much more suspicious and should be an immediate red flag.
But of course it's not quite comparable, it's extremely time / labor / logistics intensive, it's hard to put large amounts of money to work, and risk is high (can diversify across different products and categories but will always be some risk).
If you make 20% ROI and turn inventory every 2 months, that's a 120% return per year and very doable. A popular factoring company in the space, Payability, is charging an effective ~200% APR on funds (2% of gross sales for an average of one week to advance 80% of net, simple factoring math). That should give you an idea of the kind of returns people are making on capital, if the companies that finance them can ask for and get triple digit effective interest rates.
But it's not something you can put $100 million into. If you look at the bigger companies doing this, they have much lower returns (e.g. etailz sells ~150 million a year, profit of 3 million, they carry inventory in the 15-20 million range - so something like 20% net ROI per year).
If someone told me they were making 6-7% per month selling inventory direct to consumer, I'd consider it average, probably room for improvement.
7% a month and id agree with you
A 2X leverage ETF would have double that rate of return, minus the overhead and interest on the leverage. Of course, it would also have double the losses in down years. With enough leverage, you can "easily" create arbitrary levels of annual returns, just by increasing risk.
This is what a Ponzi scheme does, in other words, this is the definition of a Ponzi scheme.
The market certainly agrees with you, this is why the top 5 coins account for the 75% of crypto market cap, valuing the combined value of the hundreds of others at less than 25%.
That's why I "collect" them. :)
For whatever else might be wrong or gameable about the stock market, at least IPOs require you to connect your identity as an officer of the company, and take on an obligation to work for shareholders' benefit, so there is a "neck to strangle" if you flout your agreement and run off with the funds. ICOs have no similar mechanism, making them extremely lucrative for scam artists.
The US's capital and commodities markets started out very wild west. Over time, they've become highly regulated. Not because of mean, bad government, but mainly because market participants wanted regulation to drive out bad actors and increase market trust. That high level of ambient trust means that many non-US companies will list on US capital markets. It's a sign they pass more rigorous standards than elsewhere.
As you point out, "ICO" is becoming synonymous with "keep away". I've already seen many cryptocurrency participants lament the decline in brand value. If it hasn't happened already, I'm sure some bright spark will try to put together some sort of "Good Housekeeping seal of approval" for ICO-like vehicles in hopes of salvaging some sort of investor trust.
Although I hope otherwise, I suspect it won't work. Between the rising interest of regulators and the ability of non-scammy businesses to raise funds via more traditional means, I expect the bad will continue to drive out the good. Ponzi himself never really repented; in his last interview before his death, he said, "Even if they never got anything for it, it was cheap at that price. Without malice aforethought, I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over."