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SEC Alleges 'Bitcoin Savings & Trust' Is a Ponzi Scheme

Soulskill posted about 9 months ago | from the new-currency-new-fraud dept.

Bitcoin 176

New submitter craighansen writes "The U.S. Securities and Exchange Commission has filed a lawsuit against a man they allege ran a Ponzi scheme using Bitcoin. According to the complaint (PDF), during 2011-2012, Trendon Shavers, operating under the username pirateat40, collected investments of over 700,000 Bitcoins from at least 66 'investors' (a valuation of $4.5M) with the promise of as much as 7% weekly returns. These 'investors' received about 500,000 Bitcoins in returns, so on average, they're probably much better-off than investors in Madoff's scheme. Nevertheless, with the rising value of Bitcoins, the $4.5M investments would be worth $65M at recent pricing if they had actually been left in Bitcoins, which approximates the 1% per day returns that the scheme promised."

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176 comments

Legal (-1)

Anonymous Coward | about 9 months ago | (#44369163)

Doesn't this mean bitcoin is now illegal?

Re:Legal (2, Insightful)

tripleevenfall (1990004) | about 9 months ago | (#44369167)

No, it means investing in them is slightly dumber than we all knew it was yesterday.

Re:Legal (4, Insightful)

Znork (31774) | about 9 months ago | (#44369239)

Actually, in this case it means quite the opposite; investing your bitcoins in something (a scam in particular) is worse than investing _in_ bitcoins.

If the investors had merely been sitting on their bitcoins they would have gotten the returns he promised (although in dollar value).

Re:Legal (4, Insightful)

pantaril (1624521) | about 9 months ago | (#44369277)

No, it means investing in them is slightly dumber than we all knew it was yesterday.

No, it means investing in bitcoin-denominated ponzi schemes is dumb, running ponzi schemes is illegal and keeping their saving in bitcoins would be good idea for people scammed by pirate40.

Re:Legal (2)

Joce640k (829181) | about 9 months ago | (#44369337)

No, it means investing in them is slightly dumber than we all knew it was yesterday.

Every time I read these stories I wonder if I'm doing the right thing by not investing in the continued stupidity of other people. It seems a more reliable investment than any others I've made recently.

Re:Legal (5, Insightful)

Archangel Michael (180766) | about 9 months ago | (#44369541)

Never underestimate the power of greed to suspend normal thinking processes.

Re:Legal (2, Insightful)

Anonymous Coward | about 9 months ago | (#44369593)

Which is exactly why I don't try to invest in the stupidity of others. I'm smart enough to realize that I'm dumb enough to end up on the wrong side.

Re:Legal (1)

1s44c (552956) | about 9 months ago | (#44369651)

Never underestimate the power of greed to suspend normal thinking processes.

That sums the whole situation up perfectly. Sadly I've already posted and can't mod you up.

Re:Legal (4, Insightful)

pla (258480) | about 9 months ago | (#44369811)

Every time I read these stories I wonder if I'm doing the right thing by not investing in the continued stupidity of other people. It seems a more reliable investment than any others I've made recently.

Unfortunately, virtually every practical means of investing in stupidity break the law; and the ones that don't (the lottery, for example), the government itself runs.

If you can find a new way they haven't yet banned to extract money from the stupid (eg. "payday loans", but those look near the end of their glory days), you will find yourself very, very wealthy.

Re:Legal (1)

thomasw_lrd (1203850) | about 9 months ago | (#44370091)

Taking money from dumb people should never be illegal. If you're dumb enough to believe that a Nigerian prince needs $50k to transfer $100m to the US. Then by all means, this should be legal.

Ponzi schemes should be evaluated on a case-by-case basis, but the burden of proof should be on the schemed.

For instance, if I ask you for $1k, and promise to return you $10k in 6 months with no proof or explanation of my scheme, that should be perfectly fine and legal.
On the other hand, if I have a porftolio with 100 other investors, and their phone numbers and you call them, and they say yeah this is legit, this man is a genius, blah blah blah. And I take you're money and flee the country, then yes that should be prosecuted to the fullest extent of the law.

Re:Legal (1)

kasperd (592156) | about 9 months ago | (#44370347)

Taking money from dumb people should never be illegal. If you're dumb enough to believe that a Nigerian prince needs $50k to transfer $100m to the US. Then by all means, this should be legal.

I think you are missing the point. The reason this should be illegal is not in order to protect the few people dumb enough to fall for it. There are other people smart enough to figure out in a couple of seconds, that it is a scam. But once they have figured out it is a scam, they have still wasted a couple of seconds. If we guestimate there are 10 million smart people in the world who each waste a couple of seconds figuring out it is a scam, then that has in total wasted a few man years of smart people's time. Imagine what those people could achieved in that time?

Re:Legal (5, Insightful)

XenithOrb (649843) | about 9 months ago | (#44369377)

This really has nothing to do with bitcoin itself, and is just someone trying to use them to scam people. Nothing new here.

Re:Legal (3, Interesting)

1s44c (552956) | about 9 months ago | (#44369663)

This really has nothing to do with bitcoin itself, and is just someone trying to use them to scam people. Nothing new here.

The reason it's a big deal is that he wasn't just trying to scam people, he was actually very successful at scamming people. If he just tried and failed no-one would care.

I saw give him a fair trail and if found guilty lock him up with a bunch of violent offenders for very many years.

Re:Legal (-1)

Anonymous Coward | about 9 months ago | (#44370031)

Maybe we should do that to you instead you retarded caveman.

Re:Legal (4, Interesting)

i kan reed (749298) | about 9 months ago | (#44369705)

I know how trollish this is going to sound, but it's consistent with my observations. This was a demonstration of just how well libertarian investors do in a (mostly) unregulated environment.

Re:Legal (0)

Anonymous Coward | about 9 months ago | (#44369745)

People that really know what investing is would have used the term "speculators" for the people that got scammed in this scheme, so the correct phrase is "libertarian speculators."

Investing is something far different, and something 95% of people trying to make money don't fully grasp. The other 5% of us make plenty of money off of that 95%.

Re:Legal (1)

i kan reed (749298) | about 9 months ago | (#44369795)

Given the context, you seem to be suggesting that you are, yourself, a scam artist. Might want to consider implications of your phrasing in the future.

Re:Legal (2)

DrXym (126579) | about 9 months ago | (#44370083)

If I were a scammer I'd be seeking out people who have a higher concentration of gullible people within their ranks than the general population - churchgoers, libertarians etc. I think bitcoin users represent easy pickings and more so because the distributed and unregulated nature of bitcoins makes it easier to collect "investments" and easier to disappear afterwards.

It does have to do with Bitcoin (0)

Anonymous Coward | about 9 months ago | (#44370101)

Bitcoin purchasers are more gullible than the general population. This guy knew that, and the knowledge worked quite well for him.

Posting anonymously to preserve my Karma, since Bitcoin is quite fashionable here on Slashdot.

Re:Legal (1)

1s44c (552956) | about 9 months ago | (#44369637)

No, it means investing in them is slightly dumber than we all knew it was yesterday.

Investing in a risk free 1% a day is fishy in any currency. This was an obvious scam and this guy should be locked up for it.

Re:Legal (1)

Mister Transistor (259842) | about 9 months ago | (#44369241)

No, it doesn't mean that bitcoins in general are a Ponzi scheme, it's just about someone USING them in a specific scam that was a Ponzi scheme.

Re:Legal (1)

TWiTfan (2887093) | about 9 months ago | (#44369287)

When I first heard about Bitcoin, I thought it might have been well-intentioned. But well-intentioned or not, the whole thing is a giant flashing sign for scammers, thieves, and money-launderers reading "Marks Here!" It was only a (very brief) matter of time before they inevitably started showing up in droves.

Re:Legal (1)

h4rr4r (612664) | about 9 months ago | (#44369405)

Which makes it no different than gold. Fox news talking heads were advertising shady gold companies during the commercials in their own shows.

Re:Legal (0)

Archangel Michael (180766) | about 9 months ago | (#44369595)

Gold is and always will be a solid hedge against inflation. Of course, it doesn't hurt that you tossed in "Fox News" to get all your liberal friends panties in a wad. And when Obama's monetary policy lead to rampant inflation ... well you will not look so smart.

Re:Legal (1)

h4rr4r (612664) | about 9 months ago | (#44369671)

Not when you buy it at $1800 an oz and now it is down to $1336. Unless you are saying that is a sign of deflation. Gold like any other commodity has its ups and downs. There is no reason to suspect it will always be a good hedge against inflation. In hyper-inflation economies like Zimbabwe gold was worth comparatively little vs USD and Rand.

I actually used Fox News because they were advertising it on that channel. It was that and some medicare scam type companies. I saw this at a doctors office in the middle of the day. I have never seen those ads on another 24 hours news channel.

I am not sure how the president can set monetary policy, I think that is the Fed's job. He can select new governors for the board, but once appointed he is stuck with them. Bush selected Bernanke. Obama could select a new chairman but he is limited to those governors already appointed. The senate would have to confirm these though, so again not like he can demand change.

Re:Legal (1)

cheesybagel (670288) | about 9 months ago | (#44369833)

When the economy bounces back gold prices go down and platinum prices go up. Platinum was cheaper than gold contrary to what used to be usual. A correction had to come sooner or later. It usually takes 5-6 years to resolve a banking crisis. Guess when the banking crisis happened.

Re:Legal (2, Interesting)

Anonymous Coward | about 9 months ago | (#44370203)

When the economy bounces back gold prices go down and platinum prices go up.

...because people buy more cars, and platinum has actual intrinsic value as a catalyst for your catalytic converter. Gold is useful for.. what? Plating on corrosion-resistant electrical connectors, I guess, but we can deposit nanometer-thin layers now. Jewelry, if the current fashion dictates, I guess.

The usual breakdown for gold use is 50% jewelry, 10% industry, and 40% hoarding -- sorry, I meant "an investment vehicle to hedge against inflation". When the hoarding percentage goes above 50% or so, there's a sudden crash in gold prices, unsurprisingly.

Re:Legal (1)

Archangel Michael (180766) | about 9 months ago | (#44369869)

And houses used to be 60% more valuable than they were after the market crashed. And Apple used to be $700 and now is selling at 436. And ...

Your analysis is lacking any depth.Where you saying gold was a bad investment when it was under 700 two years ago? Saying gold is a bad investment and pointing to Fox News is pure hyperbole, designed to illicit emotional responses.Gold is an investment, good at times, poor at other times. It is not a scam anymore than AAPL is a scam.

On the other hand, it is perfect for investors like me. Keep up the work, and I'll continue to bet against people like yourself.

Re:Legal (0)

Anonymous Coward | about 9 months ago | (#44370399)

Glen Beck was advising people to buy gold coins from a company that was charging about twice market value for the coins. The advice to invest in gold may have been sound but buying gold coins from Goldline International was a terrible way to do it. It was a scam from start to finish.

Re:Legal (1)

1s44c (552956) | about 9 months ago | (#44369679)

And show up they did, and they were very successful. You know what they say about a fool and his money..

But then scams with cash and money transfer services have been going on for a very long time. BitCoin didn't really change anything there.

Re:Legal (1)

h4rr4r (612664) | about 9 months ago | (#44369395)

They almost try to be though. What with mining paying early adopters more it has a bit of that.

I think the shrinking supply of them and increasing price will lead to uptake for litecoin and its other competitors.

Re:Legal (1)

1s44c (552956) | about 9 months ago | (#44369685)

They almost try to be though. What with mining paying early adopters more it has a bit of that.

I think the shrinking supply of them and increasing price will lead to uptake for litecoin and its other competitors.

LiteCoin is a troll on BitCoin. It's just a copy and paste job and there really isn't any need for it to exist.

Re:Legal (4, Insightful)

RabidReindeer (2625839) | about 9 months ago | (#44369573)

Doesn't this mean bitcoin is now illegal?

No, it means that bitcoins are just like real money! You can commit real financial fraud with them.

Re:Legal (1)

1s44c (552956) | about 9 months ago | (#44369627)

It means they caught a conman who prayed on those blinded and stupefied by greed.

I hope they throw the book at this guy. Although I know there are literally millions more con artists who would happily repeat his actions.

FIRST (-1)

Anonymous Coward | about 9 months ago | (#44369165)

Yeah, I'm first knee-grow!

interesting (2, Interesting)

poetmatt (793785) | about 9 months ago | (#44369173)

so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?

Re:interesting (4, Insightful)

Anonymous Coward | about 9 months ago | (#44369197)

You think the SEC cares if it is a legitimate security?

The funny thing is that even if it is not a ponzi scheme, it is still an unregistered bank, which is illegal in and of itself.

You can't escape regulation just by doing business with bitcoin instead of dollars.

Re:interesting (0)

Anonymous Coward | about 9 months ago | (#44369245)

Only two things in life a certain, death and taxes.

Ponzi schemes (or securities) aren't USD-only (4, Insightful)

sirwired (27582) | about 9 months ago | (#44369223)

Why would you think it's not considered a legitimate security? A Ponzi scheme can be built on anything you like; if it's an investment, the SEC has jurisdiction.

The feds may not like BitCoins, but that's mainly due to their use for money-laundering, not because they have some sort of deep-seated fear that the USD will start feeling the heat of competition.

Re:Ponzi schemes (or securities) aren't USD-only (2)

Shavano (2541114) | about 9 months ago | (#44369369)

Think about it. The US dollar has always had PLENTY of competition. You want to do business in Mexican pesos or British pounds? That's always been legal. The only thing you can't do is refuse to acknowledge dollars as legal tender.

Re:Ponzi schemes (or securities) aren't USD-only (-1)

Anonymous Coward | about 9 months ago | (#44369641)

The only thing you can't do is refuse to acknowledge dollars as legal tender.

Wrong! The line about "legal tender for all debts public and private" is a lie. There are plenty of businesses that routinely refuse to accept cash. If I open a business there is no law that says I can't demand payment for my goods and services in credit, gold, euros, or in peanuts for that matter. http://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx

Re:Ponzi schemes (or securities) aren't USD-only (2, Informative)

Anonymous Coward | about 9 months ago | (#44370197)

It's not a lie. They can refuse to provide goods and services in exchange for cash, because neither goods nor services are debts.

Re:Ponzi schemes (or securities) aren't USD-only (0)

Anonymous Coward | about 9 months ago | (#44370305)

Wrong! You can choose not to incur a debt, but once the debt is incurred, legal tender _is_ a legal way to settle the debt.

If your mexican food restaurant in US only takes pesos and your customer already ate but is peso-less - sure, you can take him to the court (or if your place is sensible, waiter will call maitre'd and after a short talk they'll take USD), but you still will get what you owe in USD, not pesos. You could have checked with him that he does have pesos beforehand and show him out if he doesn't - that's what that page means.

Re:Ponzi schemes (or securities) aren't USD-only (2)

Ares (5306) | about 9 months ago | (#44370423)

Wrong! The line about "legal tender for all debts public and private" is a lie.

Wrong! There is a difference between debts and "goods and services". From your link:

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.

The banks issuing your credit cards, or holding your car loan or mortgage must accept US Currency as legal tender in payment for that loan. There are certain schools of thought that hold that if they don't, they have lost the ability to collect on that debt. Following that school, If a car dealer and I signed a purchase agreement for a car, a debt has been created. If I offer to pay in cash and the dealer refuses, the car could well be mine for free under the law.

You are correct, however, on the goods and services, unless the goods and services have been delivered prior to payment, in which case a debt does indeed exist.

Re:Ponzi schemes (or securities) aren't USD-only (1)

tmosley (996283) | about 9 months ago | (#44369381)

Unless the perpetrator is a TBTF bank, in which case they aren't allowed to intervene.

Sounds like bullshit, but government officials have said as much openly and on the record. How ANYONE could have ANY money in a system like that, I will never know.

Re:interesting (0)

Anonymous Coward | about 9 months ago | (#44369237)

The SEC can get involved with anything that involves securities or exchanges. Illegitimate or not.

Re:interesting (3, Informative)

Anonymous Coward | about 9 months ago | (#44369323)

The SEC does *not* regulate currencies. It does, however, regulate investment companies, with the protection of the public in mind.

Re:interesting (0)

Anonymous Coward | about 9 months ago | (#44369353)

so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?

Firstly, the allegation here is that this is a classic ponzi - the fact that it is denominated in Bitcoin rather than Euros or Dollars or goats is only a side issue here. The Bitcoin issues are around its use for money-laundering, which is not a SEC responsibility.

Secondly, why do you think that the SEC can only get involved in 'legitimate securities'? It's precisely those that aren't legitimate that it is supposed to be targetting.

Re:interesting (2)

1s44c (552956) | about 9 months ago | (#44369693)

so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?

For the amount of money involved I think they would be involved if it was a scam involving sea shells or wooden tally sticks.

It doesn't have to be legitimate. (0)

Anonymous Coward | about 9 months ago | (#44369721)

so they're selectively acknowledging bitcoin? how else can SEC get involved unless this is considered a legitimate security?

That's an incorrect conclusion. You would get into trouble if you sold your own securities in a fictitious company, sold bogus securities in a real company, and any number of frauds involving investments - all illegitimate securities. So, legitimacy has nothing to do with anything.

Also, 7% per week!? Didn't anyone think that was too good to be true?! In this days and age, I'd be careful about anything that promised 7% per year!

Auto refresh (0, Offtopic)

Anonymous Coward | about 9 months ago | (#44369185)

How does one tell /. to stop autorefresh?

8% weekly - what kind of idiot believes that ??? (0)

Anonymous Coward | about 9 months ago | (#44369205)

Xtreme Speculators who whine when they are taken for a ride???

These are people who used to think they bought the Brooklyn Bridge

BitCoins sound like a perfect tool for flim-flam men .... have the Nigerian Princes heard of them yet ???

Re:8% weekly - what kind of idiot believes that ?? (1)

Sockatume (732728) | about 9 months ago | (#44369235)

According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?

Re:8% weekly - what kind of idiot believes that ?? (3, Insightful)

petermgreen (876956) | about 9 months ago | (#44369419)

Not really, the fact is with bitcoin having climed so fast there isn't really much you could invest it in that would have performed better than just holding the bitcoins. I guess you could make bitcoin denominated loans but the combination of lack of effective regulation and the aforementioned rise in bitcoins value would probablly lead to an extremely high default rate on such loans.

Re:8% weekly - what kind of idiot believes that ?? (1)

Sockatume (732728) | about 9 months ago | (#44369481)

That's my point. The scheme's operators only had to sit on the coins and pay out their actual nominal value to come out in line with even their most optimistic predictions. If they'd posited a 5% rate of return they could've even made a very tidy profit too.

Re:8% weekly - what kind of idiot believes that ?? (1)

Immerman (2627577) | about 9 months ago | (#44369809)

What makes you so sure that they didn't do just that? Collect money whose value is increasing at 7%, pay out at 5%, pocket the difference. Sounds like a wonderful business model to me as long as you can find the marks to "invest". And 65M * 2/7 = $18.6M pocketed, even ignoring the effect of compound interest.

Lets see, the reality would be closer to:
1 year = 52 weeks
@5%/week = 1.05^52 = 12.64
@7%/week = 1.07^52 = 33.72
profit = $65M*(33.72 - 12.64)/33.72 = $65M*0.625 = $40.6M
Not bad for a dishonest year's "work"...

Re:8% weekly - what kind of idiot believes that ?? (1)

tjb (226873) | about 9 months ago | (#44370075)

Except they had to pay out in bitcoins, not dollars. If Bitcoins increased their value against the dollar, it made the 8% per week even more implausible.

Since there are no actual investments with legitimate earnings yields that are nominally denominated in bitcoin (or at least not enough to matter), any sort of banking scheme that offers interest denominated in bitcoin is either a scam or a pure short-play (bc to $, wait for price to drop, buy more bc). Welcome to full reserve banking, where the only legitimate banking charges you to hold your money.

Re:8% weekly - what kind of idiot believes that ?? (1)

dbIII (701233) | about 9 months ago | (#44369643)

According to the post the actual value of bitcoins has climbed at about 1% per day

Yes it's the weekly bitcoin praise article just doing it from a different angle. Whether that claim is true or not is sadly a different story and not proven here.
It's at best Amway or Tupperware for geeks, but personally it looks very much to me like an old fashioned ponzi scheme that is baited for geek and has people like the readers here as it's intended victims.

Re:8% weekly - what kind of idiot believes that ?? (1)

1s44c (552956) | about 9 months ago | (#44369735)

According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?

Right. But the scheme was denominated in BitCoins. You invest 1, next day you have 1.01 and so on. That's on top of the USD value of the BitCoins going up. Of course there was no way that this guy was getting 1% of his held BitCoins from thin air. This guy even started rumours about involvement in laundering drug money as a source of the 1%.

What kind of an idiot believes the unbelievable? I struggle with that too. The answer seems to be that there are a lot of people that will literally believe anything.

Re:8% weekly - what kind of idiot believes that ?? (0)

Anonymous Coward | about 9 months ago | (#44369921)

According to the post the actual value of bitcoins has climbed at about 1% per day, so surely it's more remarkable that the scheme failed to meet those expectations?

The guy was withdrawing the bitcoins to pay his rent. If he had actually left them in the account then the promised rate of return would have materialized although by happy coincidence than strategic investment.

Covered before on slashdot, a year ago. (4, Insightful)

deego (587575) | about 9 months ago | (#44369285)

What's new this time around is the SEC charge.

http://yro.slashdot.org/story/12/08/29/0349226/large-bitcoin-ponzi-scheme-collapses-with-a-loss-of-56-million [slashdot.org]

And, calling this a is a problem with bitcoin is like blaming the US Dollar for Bernie Madoff:

http://yro.slashdot.org/comments.pl?sid=3079181&cid=41163623 [slashdot.org]

Re:Covered before on slashdot, a year ago. (2)

Sockatume (732728) | about 9 months ago | (#44369505)

Neither Slashdot, the article, nor the SEC are saying that it is a bitcoin problem; it's your standard scheme exploiting irrationality around a commodity, that happens in this case to be bitcoins.

Re:Covered before on slashdot, a year ago. (1)

Yebyen (59663) | about 9 months ago | (#44369581)

What's new this time around is that he's in custody. I haven't read the article, but I got grapevine news from someone who reads more than I do that yesterday, PirateAt40 was taken into custody and caught with 700000 bitcoins in his wallet.

I told her I was honestly surprised he was in police custody and not the recipient of a brand new Colombian Necktie.

Re:Covered before on slashdot, a year ago. (1)

Yebyen (59663) | about 9 months ago | (#44369753)

I cannot confirm that he is in custody, but I heard "they got him". Reading this article I am starting to doubt it. There is little doubt for anyone who knows the Pirate Savings and Trust (that's what it was called first) that it is a scam, a lot of people lost their money and this is almost certainly not a big stunt for Bitcoin publicity. (heh)

Re:Covered before on slashdot, a year ago. (1)

1s44c (552956) | about 9 months ago | (#44369771)

700,000!? That's 66 million USD at current market prices.

That's one hell of a con.

Re:Covered before on slashdot, a year ago. (0)

Anonymous Coward | about 9 months ago | (#44369677)

But wiser people realize *that's the point*: We DO blame the US Dollar for the damage done by Bernie Madoff.

With a currency that isn't based solely on delusion, and a system that doesn't allow to make money from nothing (with interest and debt) -- just to force its population into hamster wheels, to work themselves to death, in order to create that money and pointless obsessive growth -- something like this could never happen.
Because just putting your money somewhere, and magically getting back more money, would be completely impossible.

All Fiat Currency Is Ponzi (0)

Anonymous Coward | about 9 months ago | (#44369343)

The difference being, the schemers have the ability to print more and the support of the media. BitCoin is one of the first non-Ponzi currencies to come along in awhile.

Bitcoin is a Ponzi scheme (0)

Anonymous Coward | about 9 months ago | (#44369357)

FTFY

So 1000% annual return? (-1)

Anonymous Coward | about 9 months ago | (#44369389)

"Those would have been worth about $4.5 million using the conversion rate in 2012, and more than $65 million at today’s rate. "

So let me get this straight, they invested $4.5 million Bernanke Bucks, and got back $46 million Bernanke Bucks (500000/700000*$65m), a 1000% return of capital, and he took a commission off that which is normal.

Seems he invested in the best thing to invest in, Bitcoins, and the only gripe is the commission he took.

Interesting they're calling it a Ponzi scheme, because he paid out far more (in dollars) than he promised to pay out, so he met his promises. But if you consider Bitcoin as a *CURRENCY*, a legitimate currency in its own right, then the return was 71% of the original capital.

So the Ponzi claim really says Bitcoin is a legitimate currency, same as California has claimed!

Re:So 1000% annual return? (1)

h4rr4r (612664) | about 9 months ago | (#44369435)

It does not matter if it worked out in their favor or not Ponzi schemes are illegal.

Not a Ponzi scheme if US$ (0)

Anonymous Coward | about 9 months ago | (#44369687)

But it's not a Ponzi scheme unless Bitcoin is a currency.

If I took money to invest in *stocks* and then returned the (bigger) money minus his cut, then that's an investment.
If I took money and invested in *bitcoins* and then returned the (bigger) money minus his cut, then its an investment.
To be a Ponzi scheme, you have to assume Bitcoin *is* the currency. A Ponzi scheme requires that the scheme only work by paying out later investors from earlier investors capital, not that it was an investment that grew, so they're saying *Bitcoin* was *not* the thing invested in, it was the currency of the transaction.

Oh and they got a 1000% of their capital back if USD is the currency, or 71% of their capital back if Bitcoin is the currency, but that point is moot.

Re:Not a Ponzi scheme if US$ (0)

Anonymous Coward | about 9 months ago | (#44369971)

Nope. He could have payed the investors in socks for all he wanted and the SEC could have stepped in.

Filed a lawsuit, not arrested? (1)

GameboyRMH (1153867) | about 9 months ago | (#44369427)

FLEE TO MEXICO

Build private compound

Employ armed guards

Enjoy

Re:Filed a lawsuit, not arrested? (1)

h4rr4r (612664) | about 9 months ago | (#44369445)

Because the mexican's won't extradite?

Re:Filed a lawsuit, not arrested? (1)

GameboyRMH (1153867) | about 9 months ago | (#44369547)

You're right I forgot they have an extradition treaty and occasionally use it. There are plenty of other countries to choose from, pick one from the ALBA group.

Re:Filed a lawsuit, not arrested? (4, Funny)

rwyoder (759998) | about 9 months ago | (#44369665)

FLEE TO MEXICO

Build private compound

Employ armed guards

Enjoy

If you chose Belize, you could pick up a pre-built compound, and some currently unemployed, (but experienced), guards.

Re:Filed a lawsuit, not arrested? (1)

1s44c (552956) | about 9 months ago | (#44369789)

FLEE TO MEXICO

Build private compound

Employ armed guards

Enjoy

With 66 million in digital currency he better have a private army bigger than the zeta's and the police put together.

Actually he doesn't need it now, he will be quite safe in jail. Well moderately safe. Less of a target anyway.

campaign contributions? (0)

Anonymous Coward | about 9 months ago | (#44369441)

seems to me it means they haven't paid their protection money (like Goldman, et al)...

Money, Its all a ponzi scheme (-1)

Anonymous Coward | about 9 months ago | (#44369455)

Before money there was barter, but if you did have what I wanted and I had what you wanted then we needed to find another trader. To solve this problem the idea of using an agreed upon media of exchange came about. Gold, silver, gems, etc.. but in time these became heavy and bulky to carry around. Then the idea came up to let some party hold these exchange values and use IOU's that later became what we now call money. The Ponzi scheme began when those holding the values saw that they always had so much in their safe and decided to make loans on it and charge interest. In other words making money off the value others had.

So today we have bankruptcies yet no one can show me the less than zero value the financial numbers represent. And this is proof of the Ponzi scheme.
Money was never intended to be a product in and of itself, but only and abstract tool to better enable trade.

Re:Money, Its all a ponzi scheme (4, Informative)

Sockatume (732728) | about 9 months ago | (#44369619)

Not sure you have a good grasp of what a Ponzi scheme involves. In a Ponzi scheme there's no making money off other people's money. There's no making money off anything. It's like trying to build a hill in a sandbox. You drag the sand in to the middle, which makes the middle go up, but the edges go down to form a moat. So you drag sand in from further away. The moat gets deeper, and the hill gets higher. The total amount of sand stays the same; all that happens is that it is redistributed. So long as you keep dragging sand around, people think the hill will get bigger forever, because the moat's never in the same place very long.

Except when you run out of sand and have no way to fill in the moat.

http://en.wikipedia.org/wiki/Ponzi_scheme [wikipedia.org]

Real value vs. representation (1)

3seas (184403) | about 9 months ago | (#44369529)

Can anyone show me the real value the abstract numbers of money (regardless of what its called - dollar, bitcoin, yen, etc.) are supposed to represent in regards to bankruptcies and other negative financial number?

If not then doesn't this say all abstract representation is a ponzi scheme?

Re:Real value vs. representation (1)

Sockatume (732728) | about 9 months ago | (#44369575)

In the simplest case it is a fraction of the issuing body's products, be that labour, goods, raw materials, whatever in the case of a country. I work in the mine and exchange my gold for dollars; I go to the baker and exchange my dollars for his bread. I could've exchanged gold for bread with essentially the same outcome.

Re:Real value vs. representation (1)

Richy_T (111409) | about 9 months ago | (#44369975)

Except in the time between you selling the gold and buying the bread, the government has printed a few billion more dollars.

Re:Real value vs. representation (1)

Sockatume (732728) | about 9 months ago | (#44369625)

Err, so I should say that a negative is an unpaid debt. You take the bread, but you don't leave any gold.

Re:Real value vs. representation (1)

3seas (184403) | about 9 months ago | (#44369699)

As an exchange media that is fine, but start taking by third party 10% for each exchange and what happens to the abstract value amount that was attached to real value?

How many transactions would it take to reduce the value representation of real value given 100 ... to nothing and less than nothing? 10-11 transactions.
Now is not a ponzi scheme a process of extracting abstract value that causes a devaluing of real value?

What a joke. (0)

Anonymous Coward | about 9 months ago | (#44369647)

The SEC is a ponzi scheme. Tell them to kiss off.

well duh... (1)

Orgasmatron (8103) | about 9 months ago | (#44369837)

Yeah, we all knew it was a ponzi when it was running. No, really. Go read some of the old threads on the forums.

Some people were just happy to collect "earnings" while it was running. A few people even managed to cash out before it all went to shit.

Also, keep in mind that most of the losses reported by people were their account balances after a few months of compounded 7% per week "interest" (LOL). The actual losses were much lower.

All the bitcoins are being hoarded (1)

gr8_phk (621180) | about 9 months ago | (#44369875)

If they had 500,000 bitcoins then those investors have a large percent of the market. Doesn't bitcoin max out around 20M bitcoins? Sure you can buy/sell using fractional bitcoin but if a small group of people are already hoarding several percent of the currency when hardly anyone is even using it yet, that doesn't look like a good future for it.

Re:All the bitcoins are being hoarded (1)

King_TJ (85913) | about 9 months ago | (#44370335)

I think the hoarding is an unavoidable consequence of a new/young currency that allows individuals to help "mint" it?

If you invest a lot of money and effort into mining bitcoins or other e-currencies, you're starting out in a situation where your up-front costs to do it are large, and initial payback is small. You *could* take a long-term view of things thinking "If I keep my systems mining the coins for several years, I'll eventually pay them off and start coming out ahead." but IMO, few of the miners do this. Why? Because computer gear breaks down over time, for one thing. The costly video cards burn up occasionally, power supplies fail, etc. The difficultly level for mining the new coins keeps increasing too. So the equipment that used to mine you several coins a day reaches a point where it mines only 1, or a partial coin each day.

So what you wind up with are most of these folks sitting on the majority of the coins they create, hoping for the value to rise enough so they make a real profit, relatively quickly, by selling at the right time.

It's also a matter of not enough acceptance of the e-currencies yet. I've got some litecoin myself, and I've only found maybe 3 or 4 websites that sell products allowing me to pay directly with my litecoin. (And none of them even have any products I'm interested in right now.) People will keep treating these coins like stock investments rather than true currencies if it's not easy and common to have the ability to SPEND them like a regular currency!

Does the SEC have any credibility? (1)

Wansu (846) | about 9 months ago | (#44369899)

Madoff operated under their noses for years despite numerous warnings by competitors that his results were impossible and likely a fraud. Wall Street itself is a ponzi scheme.

For several years, one big financial firm after another cratered or had to be bailed out and all we heard from the SEC was crickets. And now they're on the warpath against bitcoin.

Re:Does the SEC have any credibility? (3, Informative)

kamapuaa (555446) | about 9 months ago | (#44370185)

If you think Wall Street is a ponzi scheme, you've defined the term so vaguely as to be meaningless.

Just say "I don't like bankers! Yucky!" if that's what you're getting at.

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