Topic: How to recognise a ponzi scheme (Read 6291 times)

"Long story short, we hear a story too good to be true... it ain't." - Lt. Aldo Raine

Important thread. This fiasco we had with BTCST needs to become a prime example and people need to become more active in saying it out loud if they think something is a scam. The Wikipedia article needs to have something on this as well. Bitcoin is especially useful for ponzi operators so this needs special attention.

Of course we can't really get rid of these until we get rid of human greed, which might prove to be a quite difficult task. But what we can do is at least take a more active stance against scams and try to teach people as best we can. That's all we can do, and hope that people get smarter.

Indeed. You need to check YOUR bias. And BTW nice try taking things out of context.

Why do not you disclose your motivation for lying to public like that here? I would also suggest to check dictionary definition of FRAUD and see if it would maybe apply here. Ohh I'll help ya.


O Really! Why would it dissapear at moment's notice when Pirate claimed or implied so many times that it is not a ponzi and that all the money will be returned to investors both capital and interest?

FAIL


FAIL


Right. I am sure in the context SEC by paperwork meant something else than an accurate tally of who put how much money in. A simple google search would reveal what mentioned "investment prospectus" means, for example.

FAIL


BULLSHIT!

It's a ponzi scheme. Ponzi schemes unravel slowly, since the investors (victims) tend to be very loyal. At 7%/week, even if no one new invests and everyone who has already invested just withdraws their profits, it takes 14 weeks to go through all their money. Usually most victims reinvest and many new victims come in, so the scheme can go on for an extended time.

It is possible that pirate from BS&T is Dread Pirate Roberts from Silk Road.  This would explain why he's got to keep so quiet about what he's doing with the invested coins.

That would mean it's not a Ponzi; it's simply profiting from the Silk Road mixer service.  Assume that that this is the case.  It would mean that BS&T is not a scam.  It doesn't mean it's risk free though.

“Ponzi” schemes promise high financial returns or dividends not available through traditional investments. Instead of investing the funds of victims, however, the con artist pays “dividends” to initial investors using the funds of subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”

This type of fraud is named after its creator—Charles Ponzi of Boston, Massachusetts. In the early 1900s, Ponzi launched a scheme that guaranteed investors a 50 percent return on their investment in postal coupons. Although he was able to pay his initial backers, the scheme dissolved when he was unable to pay later investors.

Tips for Avoiding Ponzi Schemes:

Be careful of any investment opportunity that makes exaggerated earnings claims.
Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework.
Consult an unbiased third party—like an unconnected broker or licensed financial advisor—before investing.

Red Flags – Possible Ponzi Scheme

Higher than normal investment returns
No taxes on returns
Little or no stated risk
Opportunity spreads by word of mouth
Groups targeted by affiliation, ethnic, or social groupings
Appearance of “exclusive” opportunity – you need an “in” to invest
Stated or implied time constraint to invest
Mastermind is often known as a “guru”, “master,” or “genius”
Blind faith – investors lack understanding of investments
Little to no paperwork documenting investments.

Great how bias works - try this.

High investment returns with little or no risk  --> Nope, huge risk it might all dissapear at a moment's notice.

Unregistered investments. --> Not anonymous, simple internet search reveals more than enough information.

Issues with paperwork.  --> No. No paperwork, no issues, but he keeps meticulous records.

3 out of six and two other "hits" are not uncommon in legitimate businesses with "unlicensed" typical of bitcoin.

Let's just see how alleged Pirate ponzi fares on SEC check list:

High investment returns with little or no risk  --> Check. 3000% per year, it does not get any better than this.

Overly consistent returns. --> Check

Unregistered investments. --> Check, run by anonymous Pirate no less.

Unlicensed sellers.  --> Check, a network of intermediaries who take a cut for promoting and proxying it

Issues with paperwork.  --> Check. No paperwork, no issues.  

Secretive and/or complex strategies.  -> Check, big secret to avoid competition, inconsistent claims on what it can be, one day it is genius trading and arbitrage, the other day it is some mysterious USD denominated investments, another day it is alien supplied mining tech and time travel.

Difficulty receiving payments. -> Nope. No difficulties reported so far.

What are some Ponzi scheme “red flags”?

Many Ponzi schemes share common characteristics. Look for these warning signs:

High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.

Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.

Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.

Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.

Secretive and/or complex strategies. Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.

Issues with paperwork. Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, account statement errors may be a sign that funds are not being invested as promised.

Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Keep in mind that Ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.

I'd say bad publicity, and perhaps more people losing faith in the credibility of bitcoin.

I'd say bad publicity, and perhaps more people losing faith in the credibility of bitcoin.

Why would Bitcoin take another hit?
A few people get scammed. End of story. No big deal for Bitcoin.