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Comment by mmaunder | Hacker News Reader

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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.

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Source: http://www.sec.gov/spotlight/enf-actions-ponzi.shtml

Keep in mind that BTC or virtual money is just another asset class.

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   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.

But it's not completely honest. The FAQ says "Every time you send money to the Ponzi address, you'll get back 1.2x what you put in." But by the nature of these scheme, the last 15% of people won't get their money back.

It also not only plainly labels itself a Ponzi scheme, but explains that you'll only get a return if others invest after you.

It could call itself multi-level marketing and be golden. You just need to resell something tangible, like TF2 hats.

Ponzi/Pyramid schemes often are honest about this. What they are usually not honest about is the mathematical impossibility of it being possible for it to keep going very long. But some simply bet on people being greedy enough to take the chance that they are getting in early enough...

As such I think it is good commentary on Bitcoin and cryptocoins in general - a lot of people do appear to enter expecting a pyramid, and just hoping to get theirs before it collapses.. The question is what proportion they make up.

Beside the word "solicit" the definition you deliver applies 100% to that website. So why do you think it does not follow the definition? The returns come from new investors. It requires a constant flow of money. It will inevitably collapse at one point.

The website does not imply "little to no risk." It explicitly states that it's a Ponzi scheme, which clearly means that you're gambling on not being the last one the party.

Yes, but it is not a requirement to hide the fact that it is a Ponzi to be a Ponzi. It still is, if you know about it or not.

By this definition, there is.

>"purported returns"

Disbursements from ponzi.io are not purported to be investment returns or legitimate income of any kind. There are clearly other people's contributions.

Yeah IMHO it walks the line between ponzi and pyramid scheme, so you'll either have the SEC or FTC coming after you. e.g. FTC has been hassling MLM schemes for years and they argue the differentiator is the fact that there's a product involved, but this clearly does not have a product, so best case the FTC shuts it down, worst case the interested agencies will include FTC, SEC, U.S. postal service and local and state equivalents.

Bit more data on the FTC's opinion:

http://www.ftc.gov/public-statements/1998/05/pyramid-schemes

Incidentally a pyramid scheme almost took down the Albanian economy and sparked the 1997 rebellion.

I suspect BTC investors are a little more sophisticated, but given the pseudo-anonymity behind cryptos, I wouldn't be surprised if something like this doesn't wreak a respectable amount of havoc in the future once cryptos are more widely held.

PS: If the site author's reading this, I'd start hitting the 5x5 stronglifts hard with a good bulking nutrition regime. You really want to hit the ground in federal prison with a size advantage. So I'm told. Can't wait for the AMA.

If you've been following what's actually gone on in the Bitcoin world for any length of time, you'd know that "BTC investors" aren't "more sophisticated" - they tend to be less so.

For one example, take a look at the people in the community who claim BTC exchanges are unregulated, and who "invest" in "stock markets" in BTC and the like: Just because you're not following the law or regulation doesn't mean you're not subject to it. It just means your hoping you don't get caught.

Another example? The pirateat40 Ponzi scheme and the creation of "Pirate pass-through" schemes. He claimed to offer 7% interest WEEKLY and Bitcoiners ate it up despite its obvious impossibility. And again they tried to securitize that by selling "shares" in and/or "insuring" their investments, and so on—all without acknowledging there's any form of legal or regulatory process to go through when doing such things.

Bitcoin is a total clown show, the history of economics repeated in fast-forward so anarcho-capitalists/libertarians can learn first hand why laws and regulations were invented.

>If you've been following what's actually gone on in the Bitcoin world for any length of time, you'd know that "BTC investors" aren't "more sophisticated" - they tend to be less so.

Part of this is Bitcoin self-selects against those with a rigorous understanding of monetary economics, capital markets, and foreign exchange.

Pretty much. It self-selects for libertarian ideologues, money-launderers, and people trying to take advantage of the ideologues and/or ride the bubble. The cool thing about BTC is that the tech bubble has given a particular set of fools a whole lot of money from which to be parted.

Can you prove this?

No. It is, however, a very profitable asset to make markets in,. That implies huge market inefficiencies and a large population of low-infomration market participants. The problem is the low size and liquidity make other markets more profitable to think about, since 10% of ten or twenty billion is less than a few basis points [1] of trillions.

[1] http://www.investopedia.com/terms/b/basispoint.asp

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.

The Dogecoin gem is interesting for the same reason.

http://dogecoingem.com/

Based on the BTC gem, which has I think been shut down.

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