I'm just drawing a comparison here for those who have forgotten the lessons of the past.
Read very carefully. I was a part of this when it happened, and I lost money.
Just remember while reading this....for years now, criminals have been waiting for the "golden" opportunity to do this again.
I'm still willing to bet anyone a bitcoin that Mt Gox is down for good. Hoping i'm wrong, though. http://www.wired.com/wired/archive/8.09/stock.html?pg=1&topic=&topic_set=
On Newsstands Now
Issue 8.09 | Sep 2000
Pg 1 of 7 >>
Money for Nothing
StockGeneration sucked millions of dollars out of thousands of people at the speed of the Internet economy. Now the market's promoters have vanished, the Feds are sniffing, and the investors - they just want to keep playing the game.
By Dan Brekke
Last January, on a listserv discussion group popular with life-extension buffs and futurists, a man named Rick Potvin wrote to share good news about a Web-based moneymaking idea he'd run across called StockGeneration. What Potvin described was a "virtual" online stock market in which participants paid real money for shares in make-believe securities. The shares supposedly gained value in proportion to the number of people who bought in, and as the overall kitty ballooned, real-money payouts would be awarded to investors.
On the StockGeneration Web site (www.stockgeneration.com
), the market's promoters - unnamed Europeans registered as SG Ltd. running the whole thing through offshore servers on the Caribbean island of Dominica - promised unlimited profits with almost no risk. The game was touted as a combination virtual stock exchange and "Internet casino" that peddled shares in 11 nonexistent companies, with SG earning its keep by taking a 1.5 percent cut from each transaction. The site claimed that the shares had never declined in value, and that the return for one of the 11 stocks - a blue-chipper known as Company 9, or Golden Nuggets - would "always keep rising," netting investors a fat, locked-down profit.
"Having bought the shares today," SG's promoters wrote, "... you can firmly expect a 10 percent monthly profit ... without any worry whatsoever."
For Potvin, StockGeneration looked like the answer to a dream: a magical money machine that would never stop delivering, giving him the freedom to live exactly as he wanted. "I've composed a little piece at www.webspawner.com/users/extrosgpotvin
that presents the case - or at least begins to - that radical wealth extension is necessary to extropian utopia as well as the case that I may have stumbled upon a possible vehicle for making that happen faster," he posted to the discussion group. "Or maybe I just stumbled. I don't know. You tell me. Thanks."
StockGeneration's "mountain of money" would never diminish, its creators crowed, thanks to the perpetual expansion of the connected world.
To some observers, including a couple who flamed Potvin, SG looked like a new spin on an old hustle - a pyramid scheme. Financial pyramids and Ponzi schemes (named after the perpetrator of a famous fraud run in Boston in 1919-20) take various forms, but they invariably involve attempts to "create" money for a pool of investors by attracting an ever-growing number of new investors to fill the coffers. The reason they don't work comes down to the cruel math of finding all those newbies - who, in a true pyramid or Ponzi setup, are the only source of income.
Consider, for example, a pyramid game conceived by four guys we'll call Moe, Curly, Larry, and Shemp. After investing $50 each up front, the men draw straws. Moe wins, and he's placed on the top row of an imaginary pyramid, with Curly, Larry, and Shemp together on a three-man row underneath. According to the rules of their game, Moe, as king of the hill, can "cash out," netting a 300 percent profit. But is that fair to the other three? They think so, because they're up next - all each one has to do is find three more investors to come in behind them and cough up $50 each. Then they'll cash out, too.
The problems start here. For these three guys to cash out, they'll need a total of nine investors instead of just three. And for all of those nine investors to make it, 27 new players have to be found, whether they're newcomers or recycled players who decide to start at the bottom and work up again. The numbers grow rapidly as the game proceeds - at the 13th round it encompasses 1 million players, and the 20th round would require more than half the total population of the Earth. The result? Pain for the latecomers. Though some people domake money in pyramid schemes - the ones who get in early enough - others are left holding the bag when the grim reality of the numbers kicks in.
StockGeneration was more complicated than this, but the basic problem looked the same: If the game was financed solely by the contributions of players, it would eventually break down. SG's proprietors acknowledged this possibility, saying that their game might look like a scam to the untrained eye. But they explained that away by borrowing a catchphrase from the new economy: The Net changes everything. Because the world's online population - the source of SG's player base and revenues - was growing almost exponentially, there would always be plenty of new players and cash coming in to the game. The company likened the process to "a mountain of money" on a card table surrounded by "thousands and thousands of players" who constantly throw new cash onto the heap. People could grab as much money as they wanted as often as they wanted, SG said, and the mountain would never diminish because of the perpetual expansion of the connected world.
"See it for yourself: no ending in sight!" the SG site crowed. "We simply can't manage to keep up with the Internet."
Potvin seemed aware of the potential pitfall when he touted StockGeneration, but he argued that somehow this game might be different. "I realize ... pyramids and Ponzi schemes collapse," he wrote Wired in January, in response to inquiries about StockGeneration. "But this is no 'ordinary' pyramid. It's more like a geodesic dome.
"It's the weirdest thing I've seen in a long time," he added. But all the same, it seemed "rational" and "sane."
Weird was more like it. These days, Potvin has changed his tune, and now claims on his Web site that StockGeneration was indeed a scam. "It is now generally viewed as an elaborate hoax," he writes. "ALL information on this web page is OBSOLETE. I have personally lost $3,000 and many players have lost large amounts as well. SG breached many rules of their own making and will probably be sued and destroyed."
Money for Nothing (continued)
Last January, even as Potvin was trying to explain StockGeneration's strange allure, the operation was already sailing in choppy waters, with players grumbling about slower and slower payouts from the mother ship. SG pleaded that difficult circumstances - bank problems, Western Union problems, phone problems, computer-server problems, password-theft problems - made it impossible to serve player-investors more efficiently. In March, SG shut down for a week, explaining that it needed to install new servers and promising wondrous efficiency when it reopened. When the site came back to life on March 20, something had changed all right, but for the worse: Players discovered that SG had sharply reduced balances in most investor accounts and canceled all pending requests to withdraw funds.
That was just a prelude. A few days later, on March 26, SG announced that its bank in Estonia had frozen its accounts, and so it was forced to suspend operations for a few more days. When the site reopened on April 6, investors were informed that SG had instituted a "reverse stock split" of 10,000 to 1 on some shares - Orwellian lingo meaning that if you owned $10,000 worth of fantasy stock, it was now worth $1. Other holdings were reduced by 90 to 99 percent. SG wrote that it was forced to take these measures due to player panic, the company having received "100,000 hysterical" emails about StockGeneration's future in one weekend.
The game went on, its operators seemingly unperturbed. Though SG had virtually wiped out accounts, it warmly invited all players back for another try while it solicited new players. The Web site's Ideology section soothingly, if confusingly, said that SG was "a real island of financial stability in our unstable world.... There can be no panic at SG, since one day of business is in no way different from another. So if there was no panic yesterday, it can't happen tomorrow. Because how is 'SG yesterday' different from 'SG today'?"
But in online player forums, rumors were circulating that US Securities and Exchange Commission investigators were looking into the game. That was confirmed in June, when the SEC - which regulates the legal buying and selling of stocks and monitors abusive practices - filed civil charges in US District Court in Boston, alleging fraud and violations of the federal Securities Act. The SEC called StockGeneration "nothing more than a classic pyramid scheme with high tech trappings, since the money needed to pay off existing investors [was] derived from investments by new or existing investors."
"Nothing more than a classic pyramid scheme with high tech trappings," said the SEC, "derived from investments by new or existing investors."
The agency, which subsequently won a preliminary injunction to halt SG's alleged fraudulent practices, said it had received 70 complaints from investors in 27 states and reckoned that millions of dollars were lost. SG's purported boss, the agency said in court filings, was a precocious 23-year-old Russian woman, Oksana Pavluchenko.
As Wired went to press, the SEC had persuaded a federal judge to freeze $6.5 million in SG funds held in bank accounts in the US, Estonia, and other countries. According to SEC senior counsel Celia Moore, this action was the first step in a legal process that could take at least a year. "There's a lot of fraud out there," says Moore, "and a big part of the mission and mandate of the SEC is to find and shut down these kinds of securities-related Ponzi schemes."
StockGeneration's response to all these allegations? That's hard to say: Wired requested interviews with SG officials more than a dozen times over the last six months and got no response. SG also disregarded an SEC demand that its representatives appear for a deposition in Boston in late June, though prospective lawyers for the company did file an emergency brief prior to the commission's request for an injunction, arguing that the court should free up StockGeneration's assets to allow SG to pay for its defense. Judge Joseph L. Tauro denied the motion, but ruled that some of the money could be used if SG's promoters could prove it wasn't derived from the illegal activity alleged in the SEC suit.
Instead of showing up to prove anything, StockGeneration's creators posted a notice on their Web site claiming government harassment: "We have been denied the right not only to continue our operations, but to our own defence!! And more than our defence, the mere right to exist!" The statement concluded that the company was "seriously worried" about the SEC's tactics.
SG's troubles don't end there. After the SEC filed its civil complaint, the US Postal Inspection Service enlisted the US office of Interpol - the international law enforcement agency based in Lyon, France - to make inquiries to Dominica about StockGeneration, raising the specter of a criminal prosecution by the US Justice Department. USPIS public information officer Juliana Johnson confirmed that postal inspectors, charged with investigating federal mail fraud, have a "preliminary interest" in the matter, though not what she termed "an officially jacketed case." Dominica's governmental International Business Unit had also formed a committee to investigate SG.
But by June Interpol offices in Roseau, Dominica, and several other capitals were already exchanging information on the people behind SG. Dispatches sent by Interpol Moscow - citing detailed evidence including specific bank accounts - painted a picture of an alleged criminal network connecting the Caribbean to Dublin, Budapest, Moscow, and Kiev. Moscow authorities have alleged that Oksana Pavluchenko is the sister-in-law of Sergei Mavrodi, a 45-year-old Russian who was charged with financial fraud in 1994 after the collapse of the so-called MMM pyramid, which sucked in as much as $1 billion from hundreds of thousands of Russian investors in the early 1990s. The next year, he won a recently vacated Duma seat, campaigning on a platform of using parliamentary immunity to stay out of prison. (He also said he'd use his freedom to make good on MMM investments.) In 1997, the Duma stripped Mavrodi of his seat so he could go on trial. But Mavrodi, whose bodyguard force was reportedly made up of off-duty Russian army commandos, left Moscow before a trial could be convened. Russian authorities declared him a fugitive in 1998, and his whereabouts are unknown. Interpol Moscow dispatches, noting similarities between StockGeneration and MMM, have alleged that Mavrodi may in fact be the mastermind behind SG.
Money for Nothing (continued)
As the astonishing allegations against SG play out, what's equally weird is the hold the game still has on people, many of whom - including some who claim they lost upwards of $50,000 - want the virtual market to keep going.
The reasoning varies, but the most common refrain from the pro-SG camp is that the government should butt out and let people take their own risks. The main gathering place for SG players is a Delphi.com discussion area called the StockGeneration Group, which contains a bulletin board known as the Happy Campground. In a posting typical of several others, a man from Phoenix calling himself Vegasjay complained that the government had no right to lower the boom: "Even though I am still down about $997, the idea of the SEC imposing its extra-legal will on other countries dependent on US funds (raised from we the people) makes me consider becoming an expat. This kind of abuse is much worse than what even the most disgruntled players have accused SG" of committing.
"Gives me the visions of Nazi Germany in Cyberspace," responded Johnh62, another forum member.
Karen, an Australian who served as a Delphi moderator, had this to say: "While I can understand the disappointment of many with past events related to SG, I can find no joy in something that involves interference by any of the Alphabet agencies in the free choice of the citizens of any country. To champion the cause of such is merely an open invitation to further and continued interference by these Government-legitimized criminals."
Who's behind it all? Interpol Moscow suggests Sergei Mavrodi, a Russian fugitive indicted in a billion-dollar scam, may be SG's mastermind.
Why did the promise of huge returns over a short time, based on a mechanism that even the savviest players probably didn't understand, excite such loyalty? To understand that, it's necessary to delve into the history, structure, and sociology of the game. The first record of SG's existence dates back to September 1997, when a Web development shop in Budapest called Valver Kft. registered the domain name stockgeneration.com. Hungarian corporate registration records say Valver is owned by V.V. Kopchenov of Moscow. An Interpol Moscow dispatch identified Valeriy Valentinovich Kopchenov, 41, as a Mavrodi associate who helped run the MMM empire. Moscow authorities further allege that SG was transferring funds to Valver's account in the Hungarian Foreign Trade Bank in Budapest.
But before that happened, the game had to find a home. Julius Timothy, Dominica's former finance minister, says SG's presence in the country also dates back to late 1997, when SG representatives approached the Domini Corporation, a business development firm in the Dominican capital, Roseau, and asked for help setting up shop on the island. (Domini representatives declined requests to talk about SG.) In November 1997, Dominica - an increasingly popular offshore tax and online gambling haven - granted the firm an online gaming license. In January 1998, StockGeneration went live.
According to documents SG filed with the finance ministry's International Business Unit, the mysterious Pavluchenko had managed a Moscow bank and a foreign-trade firm before she launched SG. Interpol Moscow said Pavluchenko was also listed as director of a Dublin firm called SVOK Ltd., which Russian investigators said was set up to make tax and license payments to Dominica, pay winnings to lucky players, and funnel funds to Valver. Over time, Julius Timothy came to suspect that Pavluchenko simply didn't exist and that SG was being run by someone else. Unaware of Mavrodi's existence, he thought it might be the man who served as its chief operative in Roseau, an Irishman in his mid-30s who goes by the name Sean Murphy.
Little is known of Murphy - who repeatedly refused to answer questions for this story - including whether "Sean Murphy" is itself an alias. Murphy dealt with players under the aliases "Leo" or "Leo Blackheart," and by his own account, in an April email sent to a player and sometime SG helper named Mike Heffernan, spends a lot of time in Eastern Europe. Dominica officials say that several other foreign nationals worked in the Roseau office, including Irishman Adam Byrne (known to players by the names "Ivor Davies" and "Adam Davies") and two Hungarians, Gyula Goy and Viktoria Istvanko. A former employee, who spoke on condition of anonymity, says that Murphy and Byrne maintained residences in Budapest.
All this was invisible to players, of course. What they found at stockgeneration.com was a crudely laid-out invitation to buy shares in a virtual stock market, accompanied by a no-brainer proposition: "Would you like to double your money every month?"
The site was larded with information: basic and complete rules, write-ups on the game's structure and ideology, a huge FAQ, advice on which shares to buy, a list of past winners (example: "James" of "Forktown, USA," who was said to have won more than $1 million), GIFs of winners' checks and bank transfers, and quotes of both present and future share prices.
Written in baffling, oddball prose, SG's Web site attempted to explain how it could funnel ordinary cash into its system of shares and pay profits. The site daringly suggested that, yes, the operation looked like a "typical pyramid," but said the similarities were "purely superficial. A whale might look like a fish, but there are millions of years of evolution between the two.... Attempts to analyze the statics of the system, i.e. specify the expected size of future payments, the number of players and so on, and produce any kind of forecasts on this basis is totally pointless.... The system exists only in its dynamics, and the rules governing stability are totally different here. It is like a bicycle: unstable statically, but fit to ride on. Just do not stop."
SG's most interesting move was to position itself as a kind of casino. Dominica's desultory oversight process meant SG's operators had no problem getting a gaming license. The permit allowed SG to claim that its game was government-approved. More important, playing the role of casino operator allowed SG to plausibly explain away player problems as the natural outcome of gambling.
Money for Nothing (continued)
"To accuse a gambling game of effecting payments to some players at the expense of others," SG's Structure section read, "is the same as accusing butter of being oily or water of being wet. In any game one always wins at the expense of others."
But SG was characteristically murky on the question of risk. It conceded that it needed to expand the player pool to pay profits: "New players: that is the only source of all financial income to any game. It does not and cannot have other sources of income." But in the next breath SG contradicted that notion, nonsensically: "Even if the influx of new players stops fully at some point, it will by no means mean the end of the game. It is a constant process in which every player continuously takes part. He/She either makes new bids or withdraws part of his/her money, or makes a bid again. And so it is constantly. The stop in the influx of new players will simply mean a relative stabilization of the height of the mountain [of cash]. And that is all."
People got their chance to grab cash from the mountain by opening an account or filling out a StockGeneration survey, a task rewarded with $50 to spend on shares. Players were invited to buy new shares with cash, check, credit card, money order, or Western Union wire. The company asked for bank transfers to be sent to accounts that peregrinated over time from Latvia to Cyprus to Estonia.
Once players' deposits were credited to their accounts, the game consisted of buying and trading shares in one of the 11 fantasy companies whose prices were set by SG. On the Web site, SG officials vaguely said they made the game work through skillful manipulation of prices in the shares - a cagey way of saying they could do whatever they wanted. Players' portfolios appreciated, and they "won" by withdrawing a portion of their holdings - the goal being to take out more than they put in.
"How the money machine works is a "pointless" question, the site insists. "It's like a bicycle: unstable statically, but fit to ride on. Just do not stop."
The fictional firms were divided into three categories. The "ordinary companies" (numbers 1 through 8, with names like Bubble Juice and Big Foot Sportswear) were those whose prices, StockGeneration said, could "change chaotically ... almost like in a real stock exchange." Company 9 (Golden Nuggets) was called "the privileged company," with its guaranteed growth rate of 10 percent a month. Last were two "high-profit and high-risk companies," 10 (MegaBite) and 11 (Fountain of Youth), whose share values appreciated from 50 percent to 100 percent a month but could also plunge 50 percent in a hurry. SG called Company 9 the privileged company because it claimed that "a huge reserve" backed its shares to guard against wicked drops. To reinforce the notion that companies 9, 10, and 11 were all good bets, SG posted not only current prices, but also set share values for each revaluation in the coming month.
The risk came in two forms. First, StockGeneration warned that imbalances in buying and selling could send some shares plunging in value - much like in a legitimate stock exchange. But the plunges would never be too drastic. ("There are no disasters, no catastrophes here," the game's Ideology section proclaimed.) The second risk involved SG's right to invoke "Rule 13," allowing it - without permission or explanation - to liquidate players' company 10 and 11 shares (and huge gains) and reassign their original deposits to the lucrative but slower-growth Company 9.
On the whole, then, the arrangement looked pretty shaky: StockGeneration's owners were a mystery, the servers were located on a faraway island, and players ultimately had no control over their money after they mailed or wired it to distant banks.
So why jump in? Possibly, many of the early players did so because they recognized the game for what the SEC now says it was, and figured they'd get in and out in a hurry. "It sounded like a pyramid," says David Hayes, a Pittsburgh condominium manager who sent a $4,000 deposit to StockGeneration on July 17, 1999, and got back $8,000 by mid-October.
Early on, as word of big payouts spread on bulletin boards, SG's growth accelerated. Roughly 400 players had jumped in by November 1998, 10 months after play started. A typical newcomer from that period was Heffernan, a former commercial airline pilot who lives in the low desert near Indio, California. He sent in $800 in December 1998. Then he, like the few hundred other SG players who'd signed up at the end of 1998, watched his portfolio multiply - Heffernan claims he eventually took out roughly $50,000, and that friends saw his winnings and wanted in, too.
According to calculations by veteran players, as of April 1999, some 3,000 accounts had been opened; by August, 25,000; by the end of November, 90,000. Most of those sending money to SG were from the United States, but there were sizable contingents from Canada, Australia, the United Kingdom, Scandinavia, Russia, and the Baltics. SG's rather homely Web site evolved over a few months into a worldwide phenomenon. According to players who examined SG's registration numbers, by May 1999, as many as 275,000 accounts may have been opened.
Sometimes the returns were indeed impressive. Paul Davis, the SG forum founder who runs a small telecom services firm in Anchorage, Alaska, says he received a total of $41,000 in six withdrawals after a single deposit of $1,700 made in February 1999. Another player, a former IT company executive who lives near Chicago, says he put in $80,000 in January 1999 and withdrew more than $200,000 in just over a year. Part of his success came from referring others - he brought in 78 players by this March. SG offered a series of rewards, including referral bonuses that were especially attractive. If you got a friend to play, you'd be credited at least 20 to 30 percent of whatever they deposited.
Through the fall of 1999, the Happy Campground forum was populated by players praising the Lord and StockGeneration. "SG is better than Vegas!" a player named Shirley exulted in December, immediately after she claimed FedEx dropped off a StockGeneration check for $8,300. "Thanks SG for a wonderful Christmas present. It took seven weeks but it was well worth the wait. I sent them back some more money to add to my generous account and am willing to play some more."
Money for Nothing (continued)
As the throngs grew, though, the game started to experience problems. What the players saw was an increasing delay in payouts. Payment requests that had usually been met within a week or two in early 1999 were taking three or four weeks by the end of the summer and nine weeks or longer by late fall. Heffernan, who eventually worked for SG from his home in California under the alias "Jack" - answering players' online questions about their accounts on the official SGsite - says that behind the scenes the game was experiencing a series of crises.
According to Heffernan, SG employees said that one bank after another was overwhelmed by the level of activity that StockGeneration's accounts involved - a growing stream of small deposits and payouts. Then the Rietumu Bank in Riga, Latvia, froze SG's accounts, which Heffernan was told by SG contained more than $20 million. SG briefly maintained an account in late 1999 and early 2000 with the Alpha Bank in Limassol, Cyprus. In January, however, SG announced the accounts were being moved again, this time to Eesti Uuml;hispank, the Union Bank of Estonia, in Tallinn. The bank troubles meant SG had to find some way to convert hundreds of incoming checks into cash. At one point late in the summer of 1999, according to Heffernan, one SG employee was "trooping around Europe with literally half a million dollars' worth of checks in a suitcase trying to cash them."
While SG was having problems with its European banks, Heffernan says, he arranged an introduction between SG and Paul Jones, the president and CEO of Banc Caribe, an institution in Dominica that handles Internet casinos as well as individual offshore accounts. Heffernan, who says he's involved in various offshore trust enterprises, notes that Jones "felt nervous" doing business with SG. Heffernan says he helped calm Jones' fears, at one point participating in a three-way phone call with Jones and an SG employee that led to Banc Caribe opening an account last fall for SG.
It was only a couple of months, Heffernan says, before problems arose with Banc Caribe. Partly because SG was inundated with small checks and had been slow to process them - many had spent time aging in the SG employee's suitcase - "a lot of the financial instruments SG was depositing were stale or just no good." Citing confidentiality rules, Jones has declined comment on whether SG was a client. As for Heffernan's version, Jones confusingly says that "not much" of it is true, yet that it represents "a valid perception" on Heffernan's part.
Staunch supporters dismissed complaints out of hand as "the cynical hostility of those whose deep goal is to disrupt rather than to help."
Meanwhile, StockGeneration's claims had briefly caught the eye of a few journalists, whose short reports of Dominican officials' interest in SG sparked a wave of worry among the players. To stem an expected panic, SG invoked Rule 13 - which allowed the company to shift players' high-return shares of companies 10 and 11 into the much slower growing Company 9 - against anyone who was "abusing the system" by not referring enough players.
More problems were just over the horizon. On January 26, SG told players that because of delays caused by Western Union - the delays were all SG's, Western Union officials say - it would no longer accept deposits made through the wire transfer company. On the 29th, SG announced: "[W]e are involved in a full reorganization of all our services" - which meant changing banks and upgrading computer services. A "Dear Players!" missive on February 8 told players to stop physically visiting the SG offices in Dominica.
Strangely, none of this dampened player enthusiasm - newcomers were arriving at a faster pace than ever. But older players were not only beginning to wonder why withdrawals were taking so long - by March, some had been waiting six months or more - but also why it was so difficult to get SG to answer any questions. Getting a live SG employee on the phone became cause for a celebratory post on the Happy Campground. The game's staunchest supporters, who often derided most complaints as whining, explained that SG's employees were simply stretched too thin to deliver decent customer service. That was probably true - Julius Timothy believes StockGeneration employed a maximum of 25 to 30 people. As the game grew, Heffernan and others who worked with the staff said a blizzard of paperwork overwhelmed the employees.
On March 13, as complaints increased that players were now having a hard time simply logging onto the StockGeneration site, SG announced that the game would shut down for a week to install new servers. When the site came up a week later, everyone with shares in the high-return stocks, companies 10 and 11, had been Rule 13'ed and their original deposits reassigned to Company 9. That move angered the many players who felt SG was pushing them back to square one. More upsetting was the announcement that all previous withdrawal requests were canceled.
Plenty of players were angry by March, but others were working hard to keep people from taking their money out of the game. Prominent among the die-hards was Maggie Helms.
Helms lives in a small town in Georgia, where she makes a hobby of selling antique illustrations and bookplates, mostly of dogs, on eBay. She says she came out ahead with SG, but not by a huge amount - she and her husband put in $3,700 in several installments beginning last August and took out two withdrawals totaling $6,144. But as the game unraveled she was a constant presence on the forums, urging people to hang in there. "I believe it was Henry Ford who said, 'If you believe you can, or if you believe you can't, you're right,'" she says. Last year, she was invited by another player to be a discussion leader on the Delphi SG bulletin board, and soon she was online at all hours of the day trying to answer questions that usually centered on how the game worked and how payment difficulties could be resolved.
Money for Nothing (continued)
One of her goals, she says, was to offer quick answers to basic questions in order to thwart "the cynical hostility of those whose goal is to disrupt rather than to help." She says most of the dissension in the forum - angry threats over late payments - involved players who "deposit[ed] money that they would not ordinarily gamble with, and as a result they get all worked up when the slightest delay occurs."
Helms now concedes that SG was guilty of "a great deal of inefficiency, error, and neglect." But most players' problems, she adds, were self-inflicted. "In almost every single major case of delay, there has been evidence of error in procedure on the part of the player." Poor attitude hurt too. "Many players say that they have never gotten any response from SG at all. I believe that's what they expected, and therefore that was the result."
Helms was what SG's creators called a "good player." Another was Linda Wesseler. The publisher of a small bimonthly magazine aimed at architects and builders in the Cincinnati area, Wesseler would altruistically play companies 1-8, the poor performers, for the "good of the game." She sent in $1,000 in the summer of 1999 and withdrew $1,200 in December. Meanwhile, the gains in her virtual account prompted her to take a real plunge, and she opened an account for $10,000 in her husband's name - that way, her account would be credited with a referral bonus of $3,000. She opened two gift accounts for her sisters and sent in $100 for each. Then she took half the $1,200 SG sent her and redeposited it. "My husband asked me why I did that," she says. "It's hard to explain the motivation, but you want to have the appearance of being a good player. What you're doing is keeping some cash flow of real money going into the game."
Having adhered to the unwritten SG code of behavior and having held a check in her hands, Wesseler wasn't expecting any trouble when she decided to withdraw $1,987 from her account last December and a little under $10,000 from her husband's account in January. SG acknowledged the withdrawal requests, but no money showed up. Wesseler, like most who tried to call SG's office in Dominica, found it impossible to get through. Her emails about the payment went unanswered through January, February, and into March. SG finally replied by telling her, effectively, to suck it up.
$100, $500, $3,000, $11,000, $50,000 losses. "You, SG, stole my father's money,"a player wrote. "This man is 86 years old, and dying. God forgive you!!!"
Not everybody stayed calm. In late March, after the Rule 13 revaluation of accounts, a player appeared in the SG forum on Delphi to announce that she had talked about her StockGeneration experiences with an SEC staff member in Boston named Celia Moore. Over the next several weeks, other players began talking about Moore. Two said they had been notified by their ISPs that the SEC had subpoenaed information about their accounts.
Then came April 6. Good news: SG reopened and told players that its lawyers had gotten the Estonians to unfreeze its accounts. Bad news: Because of the player panic, SG was forced to drastically reduce accounts - even cash balances - by 90 to 99.99 percent. "We regret what has happened," SG's message said. But there was a silver lining: "It is not actually going to be so very hard for you to compensate yourselves in our game for such losses." All players had to do was stick with the game.
Overnight, hundreds of SG players who had resisted suggestions to complain to the authorities were on the phone to officials in Dominica and at the SEC. Others formed an Anti-SG forum on Delphi to vent their rage and organize a response.
For the first time, hundreds of players who had never gotten a dime back from their deposits popped up to reveal the extent of what they claimed were their losses - $100, $500, $3,000, $11,000, $50,000. One member posted a $40,000 reward for information leading to the true identity of the people running SG. A member from the Netherlands suggested that angry players charter a plane to Dominica to get their money back and bring the SG miscreants to justice. "I just want to say that you, SG, stole my father's money," one person wrote. "This man is 86 years old, and dying ... has about 6 months to live. God forgive you!!!"
A few days after the April 6 meltdown, there was this singular concession: Deposits made in late March, after the company announced a six-week moratorium on devaluing the high-return stocks, would be restored. Within a few weeks, Wesseler and some others who had waited months in vain for SG to honor their withdrawal requests got a surprise in the mail: Checks that covered about 10 percent of the amount they had sent into the game. But Wesseler, who had sunk nearly $10,800, says she wasn't (and still isn't) satisfied with the $1,087 StockGeneration coughed up six months after she asked for a $10,000 payout.
Surprisingly, the events of April 6 didn't finish off SG. On April 12, the game announced that it would accelerate the growth of companies 10 and 11. In other words, the pennies that were left in accounts would once again start to grow. SG promised to make payments within five days of withdrawal requests. SG's online forums began to come back to life, with players announcing the arrival of payout checks and new investors asking for advice on strategy.
Then, in May and June, the company went on the offensive. It expelled half a dozen of its harshest online critics "for breaking the rules," although the only abuses it listed were comments from the Delphi forum calling SG a scam. To make sure that the online buzz about SG would be positive, it told players that to remain in good standing they would be required to post details of their payments when they received them. Conversely, SG posted details about how much money the turncoats had put into the game and how much they had taken out. The smallest profit listed was 80 percent - a $27,976.07 return on $15,350 invested - and the largest was about 6,200 percent - $1,000 plunked down by Frederick Mann, who maintains a site that promoted SG and tracks more than 20 other high-yield income "opportunities." According to SG, Mann's payouts totaled $63,519.74. (He confirms he made a bundle, but claims it was $35,000 more than SG reports.)
Money for Nothing (continued)
Two of Mike Heffernan's acquaintances, people he'd referred to the game, were among those whose accounts were reduced. One had put in $15,000, and the virtual account had stood at $46,000 after the March Rule 13 episode; the other had sent in $10,000, which had grown to $25,000. After the April events, their accounts stood at $2,600 and $1,500 respectively. Problem was, Heffernan wrote Sean Murphy, these weren't people who would be content to verbalize their distress about the loss. "I'm serious when I tell you, these men are nothing to fuck with," Heffernan told Murphy, pleading with him to pay them back. Referring to a relative of one of his acquaintances, he said, "When he's done with me, he'll head for you. The planet isn't big enough for you to get away."
Murphy wasn't cowed. "I do feel sorry" for your friends, he replied by email. "They put real money on the line. They weren't so lucky, but their losses financed your gains."
He advised Heffernan's friends that "if you're looking for a lying, manipulating bastard to take out your anger on, Heffernan fits the bill."
SG, in its on-site messages to players, noted somewhat irritably that losers were disappointed that their holdings, both real deposits and virtual accruals, had vanished. "To be honest, we are beginning to get pretty bored when reading all these poignant stories," an SG FAQ posting read, "and about the poor, naive players who put their trust in us."
"We are beginning to get pretty bored with these poignant stories," said a recent SG posting, "about the poor, naive players who put their trust in us."
SG offered succinct advice showing that whatever caution the owners had exercised in positioning the operation as a game of chance - as gambling rather than investment - had been thrown to the wind: "Invest money! Invest money!! Invest money!!!" the site screamed.
The company addressed one other piece of business. It blasted several new operations that appeared to be patterned on SG and had attracted some of the game's veteran players. In addition to raising doubts about the financial soundness of its competitors, SG noted that they lacked gaming licenses and were thus illegal. These statements prompted complaints from players that SG was "immoral" and trying to sow panic among its rivals. Those accusations in turn provoked an exclamatory blast of what reads like perfect frankness.
"As for immorality, what a vague concept. ... We would like to remind you that we never really promised to be highly moral. We only promised to pay you a profit of 100 percent a month. We have kept our promise. Nothing more than that."
For all the electronic outrage, only one player out of dozens interviewed for this story is actually taking direct action against StockGeneration. Kelley Callanan, of Piedmont, South Dakota, says he had saved tens of thousands of dollars during several seasons working on Alaskan fishing boats. That emboldened him last September to put a total of $55,000 into two SG accounts opened in the names of cousins. His timing, as we now know, coincided with the beginning of SG's serious problems in replying to withdrawal requests. On April 6, SG obliterated Callanan's virtual accruals, along with all but $7,000 of the cash he had put in. A devout Christian, Callanan prayed over his losses for several weeks. Then he hired an attorney in Dominica, Gerald Burton, who has prepared a court filing demanding that SG pay the Callanan family $123,000 - the stated value of the accounts before the April wipeout.
But for every Kelley Callanan, there are scores of Russ Edwardses out there. Edwards is a marketing consultant who says he makes a substantial part of his living by sitting in front of a PC in his Miami home all day and playing roulette at an online casino. "People say, 'Play the stock market,' but that's not a quick enough return for me. I can make $1,000 a day doing this, even though I absolutely hate it." Edwards says he's "down" $50,000 to StockGeneration, but he's not hiring an attorney to get it back.
Edwards posted frequently on the Delphi forum; his ruminations could go on for thousands of words. The impression he gave was of someone working overtime to rationalize SG's detonation of his holdings.
"Well, look, I'm out $50,000 and I'm unhappy about that. But everything they did, they did within their own rules," he said in a phone interview in April. In a later conversation, he made his point by referring to SG Rule 10, which said that the game's rules were subject to change "as necessary." Any responsible adult, Edwards argued, would understand that this allowed SG's owners to do as they pleased - that was the gamble players took with SG. He also made allowances for a difference in values between the owners and players: "I think when people say they cheated, it's because of their preconceived Western notions of what cheating is. I'm not an SG booster, but these people came from Russia and they have a completely different idea about that."
He viewed the SEC's intervention as unwarranted intrusion, as "taking money out of my pocket" by threatening to shut down SG. Even so, he said he could see a silver lining. If SG beat the SEC in court, he figured, the game would have an unbeatable seal of approval and would be more popular than ever.
Even if the SEC wins, myriad quick-cash, big-return programs are springing up on the Net. "Look, we don't want to waste your time ... or ours," one pitch starts. "You must be determined to earn a bare minimum of $10,000 in the next 30-45 days and to develop over 1 Million Dollars Cash in the next 24-36 months.... Retirement in 3-5 years." More than a hundred such programs - whose mechanisms will be revealed simply by emailing for details, and which often involve recruiting hundreds or thousands of people into multilevel marketing schemes - are promoted every day on the SG forum's Huckster's Heaven list.
Many members of the SG forum list their involvement with other high-yield income programs. Maggie Helms, for instance, is playing eMutualFun (EMF for short), a game that calls itself "a 'virtual stock market' where players buy and sell shares in an imaginary company," with share values changing "according to a formula that takes into account the amount of trading activity."
Is it legit? Neither the SEC nor postal inspectors have heard of it; there is no suggestion of any wrongdoing. Helms is happy to find out on her own, regardless of risk.
"It is well managed, and I think the game has a chance to be a good one," she wrote about EMF after StockGeneration's April blowup. "Quite frankly, I see none of this as being nearly as ludicrous as investing in Beanie Babies and Pokémon. Now that's a curiosity for sure."