How to Identify a Ponzi

[Mosrite]

Easy. If a thread in "lending" or "long-term offers," contains a business proposal, it's a ponzi.

[1715080050]

1715080050

[bitcoinbear]

9. They have "Pass-Throughs".
Tentatively this seems like a good indicator. I don't think pass-throughs are typically used in regular project funding.  It increases the distance between the investor and the fund-owner and acts as a shield/distraction.  It is more indicative of money laundering.

I don't think this is generally applicable. Do you have any examples other than Pirate? An example of a legitimate pass-through is the GSDPT (Gamma satoshiDice pass through), which allows people using one exchange to invest in an asset listed on another exchange.

[tiberiandusk]

http://www.tumblr.com/blog/nessieneedstrefity

[JoelKatz]

I don't think this is generally applicable. Do you have any examples other than Pirate? An example of a legitimate pass-through is the GSDPT (Gamma satoshiDice pass through), which allows people using one exchange to invest in an asset listed on another exchange.

Madoff would be an example.

http://money.cnn.com/2010/12/09/news/companies/madoff_feeder_funds/index.htm?iid=EL

[nrd525]

MMM used a decentralized system of offices in various towns in Russia - at least according to the website.  Similar to a pass-through.

[WifeOfStarfish]

Easy. If a thread in "lending" or "long-term offers," contains a business proposal, it's a ponzi.

Duh - what apart from ''business proposals'' would BE in lending?!

[guruvan]

Easy. If a thread in "lending" or "long-term offers," contains a business proposal, it's a ponzi.

Duh - what apart from ''business proposals'' would BE in lending?!

LOL. No shit. The "How to identify a ponzi" thread talks about the lack of a business proposal as a potential sign of a ponzi scheme.

Now, a business proposal confirms one. 

The average IQ continues to decrease on this forum. Currently the odds are 1:3 the avg IQ will reach 70 or below before the block reward halves.

[Nefario]

Here is an exercise, look at this thread and try to list the ways in which it is likely to be a scam.

[nrd525]

A variable interest rate is an interesting factor. It lets a ponzi slow down payments if they are not getting enough new investment.  On the other hand, a reduction in the interest rate is also a sign of a poorly run ponzi or one that is about to collapse - so most operators won't do it unless they are nervous to desperate.  Pirate didn't lower interest rates until the dire end. A variable interest rate can boost confidence if you are always hitting the highest part of the range (artificially outperforming expectations), but if your interest rate actually does vary a lot it will reduce investor confidence.

The other reason for a variable interest rate is to make your project look more legitimate.  This is useful if your intended investors have experience with ponzis.

...

There are some  interesting investor videos about Zeek Rewards (failed US ponzi scheme valued at $600 million) on Youtube.  The level of denial is very similar to that experienced by BTCST investors.  When someone writes up the Zeek Rewards story it should be a good case study.

[nrd525]

I added this movie:
The Man Who Would Be Polka King - movie account of a Polish Pennsylvanian Polka Performer Ponzi (say that five times) that stole $5-$10 million.

I recently watched it on Netflix (Instant Watch) and enjoyed it.  A good example of how to build a great relationship in a niche community and use that trust to make money.  Though what is really interesting is that it looks like he wasn't in it for the money - he wanted to use the money to build a polka empire and be famous.  So he was using the ponzi to fund his other activities that were running at a loss.

[hgmichna]

[…] but if your interest rate actually does vary a lot it will reduce investor confidence.

The other reason for a variable interest rate is to make your project look more legitimate.  This is useful if your intended investors have experience with ponzis.

…

You cannot easily have it both ways. Fact is that honest high-risk investments always have varying interest rates, so a fixed high interest rate is a Ponzi indicator. Citation from the movie "Chasing Madoff": "There are no straight lines in finance."

Thanks for the other movie hint! Will try to get and watch that one too.

[Stephen Gornick]

On a related note:

Ponzi Scheme Victims May Owe Triple Damages For Usury In Clawback Lawsuits
http://www.forbes.com/sites/jordanmaglich/2012/10/23/ponzi-scheme-victims-may-owe-triple-damages-for-usury-in-clawback-lawsuits-a-new-tool-in-ponzi-scheme-litigation/

Isn't it the ponzi operator who is the victim of "usury" though?  (i.e., having to pay "investors" excessive interest rates?  ha! )

[JoelKatz]

On a related note:

Ponzi Scheme Victims May Owe Triple Damages For Usury In Clawback Lawsuits
http://www.forbes.com/sites/jordanmaglich/2012/10/23/ponzi-scheme-victims-may-owe-triple-damages-for-usury-in-clawback-lawsuits-a-new-tool-in-ponzi-scheme-litigation/

Isn't it the ponzi operator who is the victim of "usury" though?  (i.e., having to pay "investors" excessive interest rates?  ha! )

It's the Ponzi's victims who are the victims of the usury because it's their money that's used to pay the usurious interest rates. The Ponzi operator normally doesn't have any of his own money invested that gets paid to anyone.

[gabbergabe]

I added this movie:
The Man Who Would Be Polka King - movie account of a Polish Pennsylvanian Polka Performer Ponzi (say that five times) that stole $5-$10 million.

I recently watched it on Netflix (Instant Watch) and enjoyed it.  A good example of how to build a great relationship in a niche community and use that trust to make money.  Though what is really interesting is that it looks like he wasn't in it for the money - he wanted to use the money to build a polka empire and be famous.  So he was using the ponzi to fund his other activities that were running at a loss.

watching now...

[nrd525]

Latest candidate:
http://makebtc.org/

Unlike other ponzis which often offer a steady rate of return, this scam has a very weird system of "levels".  With their default values it looks like it takes 14 "rounds" to get your money back (if you withdraw 50% / invest 50% in "levels").  After 14 rounds of this, you could get a return of 17%/round with 100% withdrawal.

Definitely meets the "high interest" rate of return.

Lacks a business model. Looks like a type of ponzi scheme that also uses a pyramid structure.  I don't understand the "level" nonsense.

Innovative in that it appears to transparent about payments and account levels. This will probably help it gain the trust of users, making it easier to scam people.

The domain registration information is fake. There is no person or address connected to it.

[oztusk]

Latest candidate:
http://makebtc.org/

Unlike other ponzis which often offer a steady rate of return, this scam has a very weird system of "levels".  With their default values it looks like it takes 14 "rounds" to get your money back (if you withdraw 50% / invest 50% in "levels").  After 14 rounds of this, you could get a return of 17%/round with 100% withdrawal.

Definitely meets the "high interest" rate of return.

Lacks a business model. Looks like a type of ponzi scheme that also uses a pyramid structure.  I don't understand the "level" nonsense.

Innovative in that it appears to transparent about payments and account levels. This will probably help it gain the trust of users, making it easier to scam people.

The domain registration information is fake. There is no person or address connected to it.

"ponzi" is a word often carelessly used out of place.

This thing might more correctly be reffered to as a "pyramid scheme." Similar but different.

"scam" though,... that's one of those words that covers a lot. A quick look at makebtc.org is good for a short lol.

[nrd525]

How would you differ a ponzi from a pyramid scheme?

A lot of what people commonly refer to as pyramid schemes in the US actually have real business models (see Avon company or Herbal Life).

I guess MakeBtc could be described as a pyramid scheme because the website needs to reach a certain level of investment before paying out (if I understand the scam correctly).  By contrast, a ponzi typically has a more standard rate of return.

http://en.wikipedia.org/wiki/Pyramid_scheme
Did Makebtc directly reward people for enrolling other people in the scheme?  That seems to be the standard definition for pyramid scheme.

[Muhammed Zakir]

https://bitcointalk.org/index.php?topic=91643.0

Thanks for the link. I was wondering what is Ponzi? When I looked the link and the wiki link from that post I understood it.
Kindly,
       Muhammed Zakhir

[JoelKatz]

How would you differ a ponzi from a pyramid scheme?

Typically, the fraud in a ponzi scheme consists of secretly using funds from later investors to pay off earlier investors. Generally, there will be some supposed business model (arbitrage, resale, whatever) that doesn't actually exist.

In a pyramid scheme, the use of funds from later investors to pay off earlier investors is typically disclosed. The key difference between a pyramid scheme and legitimate multi-level marketing is that a pyramid scheme has no real product sales. In a pyramid scheme, by design, the vast majority of the profit made by early investors comes from the fees paid by later investors and any products sold are, typically, a sham.

The line between MLM and pyramid schemes is not always a bright one. One giveaway is that pyramid schemes typically promise you a cut of the membership fees charged to your downline while MLM schemes focus on sharing the proceeds from your downline's sales. If you're getting a cut of your downline's membership fees, that means that part of your membership fees went to whoever brought you in. What *legitimate* purpose does that serve?

[Muhammed Zakir]

I'm interested in developing a list of questions/variables that are associated with Ponzis.

Here is my short list.  Please add items to this list and I'll edit the post.

Ponzi Indicators
1. High rate of return
Explanation: ponzi schemes typically offer very high rates of return that are not possible.  Anything that is > 50%/year APR is suspicious.  Anything > 500% APR is very suspicious.  Ponzis can offer lower rates as well (see Maddoff - 10% APR), but these are less common.

2.  Provides no evidence of business activity
They refuse to show what they are investing their capital, what products(s) or services they are selling, and who the customers are.  By contrast a mining corporation will be able to provide pictures of hardware and statistics of how many BTC generated per month.

3. Business activity is "speculation"
Speculation doesn't make steady rates of return. In fact the return rate should often be negative.

4. Steady rates of return
When combined with a high rate of return that is greater than the market rate of return this is suspicious.

5. Increasing demand for capital
Unlike a regular business which has its largest demand for capital at the start, the ponzi starts off with a very small amount of capital ("refuses" deposits), and then grows rapidly.  An increasing demand for capital makes sense only if the business can show what the money is being used for.  A ponzi will need to have its capital grow at a standard rate that exceeds the withdrawals, whereas a legitimate business will have a varying rate of investment (and this rate will often hit zero).

6. Operator hides their identity
If the name and identity of the person who runs this project is publicly known, and they live in a jurisdiction where it would be easy to prosecute them then they are less likely to run away with the money.  Though there are exceptions to this (perhaps too many for this to be a good indicator?).

7. A Super Majority of Non-Investors view it as a Ponzi
If a business is only defended as legitimate by those who are invested in it, while the overwhelming majority of individuals who have no money to gain from taking a position see it as a ponzi -- it is likely that the non-investors are more trustworthy in their assessment.

8. They advertise a "Limited Availability"
They have a low demand for funds.  Especially in the early phase.  Ideally they've got people chomping at the bit to be included in the scheme.

9. They have "Pass-Throughs".
Tentatively this seems like a good indicator. I don't think pass-throughs are typically used in regular project funding.  It increases the distance between the investor and the fund-owner and acts as a shield/distraction.  It is more indicative of money laundering.


First-Hand Ponzi Accounts
Chasing Maddoff - movie
The Man Who Would Be Polka King - movie account of a polka performer / ponzi that stole $5-$10 million.

EVE Ponzi First Hand Account
http://web.archive.org/web/20091026234156/http://geocities.com/currintrading/
http://web.archive.org/web/20091021193732/http://geocities.com/currintrading/bank.html

Books  
(I haven't read them but the Amazon reviews look good)
http://www.amazon.com/Robbing-You-Keyboard-Instead-Gun/dp/1453895299/
http://www.amazon.com/The-Vigilant-Investor-Fraud-Proof-Investments/dp/0814417507



Vladmir's Resources
Thread: https://bitcointalk.org/index.php?topic=91643.0

There are many resources dedicated to helping people to recognize and avoid scams:
http://www.sec.gov/answers/ponzi.htm
http://www.fsa.gov.uk/consumerinformation/scamsandswindles
http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02597.html
http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/Little-Black-Book-Scams-e.pdf
http://www.kpmg.com/ca/en/whatwedo/specialinterests/at-risk-magazine/pages/ponzischemes%E2%80%93howtorecognizethem.aspx
http://www.fbi.gov/scams-safety/fraud/


There is some action that can be taken by people to protect themselves and others:
http://www.fsa.gov.uk/consumerinformation/if_things_go_wrong
http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02801.html

Thanks for posting this!
I have a doubt, Is pbmining.com a Ponzi scheme?
Kindly,
        Muhammed Zakhir