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Author Topic: Warning signs of financial fraud  (Read 2073 times)
Nagle
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June 27, 2011, 09:08:04 PM
 #1

A standard list of warning signs of financial fraud, as applied to Bitcoin exchanges.

  • (1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud. Investment fraud intentionally appeals to the basic human emotions of fear, greed, and wanting something for nothing so that you will make an irrational decision. Be wary of any salesman who draws out your emotions as part of the sales process. Due diligence is how you remove the emotion and base your decision on facts.
  • (2) Obfuscation and Misinformation: Fancy words and successful images are designed to win your trust by creating a façade of sophistication. Techno-babble is designed to intimidate you into not looking behind the facade. Multiple postings on the internet under various aliases are designed to create the appearance of many people involved. Professional images are designed to create trust. Always ask, "Where is the beef?" Never trust the façade, but instead look deeper to find real substance. Due diligence is how you look behind the veneer of obfuscation and misinformation to see if there is any real meat.
  • (3) Unverifiable Claims: Secrets of the rich, technological breakthroughs, patent pending formulas, government conspiracy theories,  and inside information are all examples of things that are either hard to verify or not verifiable at all. Never invest based on hollow words alone. Verify all statements and claims with independent third party information. Assume nothing is true until confirmed through due diligence.
  • (4) Manipulative Sales Practices: Intimidation, inadequate disclosures, non-traditional payment choices, inadequate diversification or improper asset allocation, encouraging you to invest based on trust, or rushing you into a decision with high pressure sales tactics are all examples of manipulative investment sales practices that deviate from proven professional standards of conduct. Never rush a decision or invest based on emotion. Due diligence will slow the sales process sufficiently to offset manipulative practices.
  • (5) Lack Of Transparency: All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.
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DrYe5
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June 27, 2011, 09:20:34 PM
 #2

It does seem fairly simple for Mt. Gox or Tradehill to back-date trades at the low and high for themselves.

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Nagle
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June 27, 2011, 09:40:17 PM
 #3

It does seem fairly simple for Mt. Gox or Tradehill to back-date trades at the low and high for themselves.

Big red flags with Mt. Gox are 1) delays and difficulty in getting money (not Bitcoins) out, and 2) complaints about limit orders not being executed.
1) is an indicator that the money might not be there, and 2) is an indicator that there may be front-running (where the insiders get to queue trades ahead of others, after seeing the queue, thus betting on a sure thing).

As I've said before, get your cash out of Mt. Gox. If they're legit, it won't hurt them; they make their money on transaction fees. If they're not, last ones to get out lose. You can always deposit cash later if you need to buy Bitcoins.
datguywhowanders
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June 27, 2011, 09:52:53 PM
 #4

*sigh* Go away troll.

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YoYa
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June 27, 2011, 10:03:23 PM
 #5

It does seem fairly simple for Mt. Gox or Tradehill to back-date trades at the low and high for themselves.

Big red flags with Mt. Gox are 1) delays and difficulty in getting money (not Bitcoins) out, and 2) complaints about limit orders not being executed.
1) is an indicator that the money might not be there, and 2) is an indicator that there may be front-running (where the insiders get to queue trades ahead of others, after seeing the queue, thus betting on a sure thing).

As I've said before, get your cash out of Mt. Gox. If they're legit, it won't hurt them; they make their money on transaction fees. If they're not, last ones to get out lose. You can always deposit cash later if you need to buy Bitcoins.

If...you really had a clue of what your on about here, you would instead be advocating that people get their BTC/USD out instead of USD only. If you don't know that BTC can be redeemed for cash in other forums of exchange.....then you really haven't been paying attention or......your on a FUD run. Given that you can read and type, it suggests to me the latter.

And besides.....some of us have diversified away from Gox ages ago anyway.
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June 27, 2011, 10:12:41 PM
 #6

But I know I'm gonna get rich with this scheme AND quick!

BTW you missed a few more that also apply

http://financialmentor.com/free-articles/investment-advice/investment-fraud/top-26-warning-signs-of-investment-fraud
DrYe5
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June 27, 2011, 10:28:52 PM
 #7

*sigh* Go away troll.

Quote from: UrbanDictionary.com
"One who posts a deliberately provocative message to a newsgroup or message board with the intention of causing maximum disruption and argument."

Mt. Gox transparency is a relevant issue for everyone here.

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BitterTea
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June 27, 2011, 10:35:51 PM
 #8

get rich quick without risk or hard work. Above market returns

Are any of the exchanges claiming this? Perhaps Bitcoin7 and TradeHill with their referral schemes?

Quote
Techno-babble is designed to intimidate you into not looking behind the facade.

Bitcoin is based on cryptography. It's quite technical. I don't see any exchanges using additional techno-babble.

Quote
technological breakthroughs

Bitcoin is a technological breakthrough. What does this have to do with exchanges?

Quote
inadequate disclosures

Fair point. However, to some people, the disclosures are adequate, and thus they keep using certain exchanges.

Quote
non-traditional payment choices

Bitcoin is a non-traditional payment choice.

Quote
encouraging you to invest based on trust

What else is there???

Quote
All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.

What? I don't see what this has to do with Bitcoin, since it's not an investment. Exchanges also aren't investments, they are exchanges.
datguywhowanders
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June 27, 2011, 10:42:20 PM
 #9

*sigh* Go away troll.

Quote from: UrbanDictionary.com
"One who posts a deliberately provocative message to a newsgroup or message board with the intention of causing maximum disruption and argument."

Mt. Gox transparency is a relevant issue for everyone here.

As his other posts have shown, Nagle is here to promote his own agenda. He isn't advocating transparency for the benefit of the Bitcoin community.

I do agree that Mt. Gox could be a little more forthcoming with information about their operation. I would say they're doing the best they can for such a small team, but they need to hire a dedicated PR person.

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silversurfer
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June 27, 2011, 10:43:49 PM
 #10

http://www.youtube.com/watch?v=H9yxD0ajt0w

That which is falling should also be pushed.
dinzy
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June 27, 2011, 11:03:53 PM
 #11

It does seem fairly simple for Mt. Gox or Tradehill to back-date trades at the low and high for themselves.

Big red flags with Mt. Gox are 1) delays and difficulty in getting money (not Bitcoins) out, and 2) complaints about limit orders not being executed.
1) is an indicator that the money might not be there, and 2) is an indicator that there may be front-running (where the insiders get to queue trades ahead of others, after seeing the queue, thus betting on a sure thing).

As I've said before, get your cash out of Mt. Gox. If they're legit, it won't hurt them; they make their money on transaction fees. If they're not, last ones to get out lose. You can always deposit cash later if you need to buy Bitcoins.

This is ridiculous.  Up until yesterday Mt. Gox made 1.3% on each transaction.  Why would they seriously jeopardize those huge returns on doing next to nothing by scamming more off the top?
DrYe5
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June 27, 2011, 11:18:34 PM
 #12

It does seem fairly simple for Mt. Gox or Tradehill to back-date trades at the low and high for themselves.

Big red flags with Mt. Gox are 1) delays and difficulty in getting money (not Bitcoins) out, and 2) complaints about limit orders not being executed.
1) is an indicator that the money might not be there, and 2) is an indicator that there may be front-running (where the insiders get to queue trades ahead of others, after seeing the queue, thus betting on a sure thing).

As I've said before, get your cash out of Mt. Gox. If they're legit, it won't hurt them; they make their money on transaction fees. If they're not, last ones to get out lose. You can always deposit cash later if you need to buy Bitcoins.

This is ridiculous.  Up until yesterday Mt. Gox made 1.3% on each transaction.  Why would they seriously jeopardize those huge returns on doing next to nothing by scamming more off the top?

Because humans aren't totally rational?

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proudhon
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June 28, 2011, 03:46:48 AM
 #13

A standard list of warning signs of financial fraud, as applied to Bitcoin exchanges.

  • (1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud. Investment fraud intentionally appeals to the basic human emotions of fear, greed, and wanting something for nothing so that you will make an irrational decision. Be wary of any salesman who draws out your emotions as part of the sales process. Due diligence is how you remove the emotion and base your decision on facts.
  • (2) Obfuscation and Misinformation: Fancy words and successful images are designed to win your trust by creating a façade of sophistication. Techno-babble is designed to intimidate you into not looking behind the facade. Multiple postings on the internet under various aliases are designed to create the appearance of many people involved. Professional images are designed to create trust. Always ask, "Where is the beef?" Never trust the façade, but instead look deeper to find real substance. Due diligence is how you look behind the veneer of obfuscation and misinformation to see if there is any real meat.
  • (3) Unverifiable Claims: Secrets of the rich, technological breakthroughs, patent pending formulas, government conspiracy theories,  and inside information are all examples of things that are either hard to verify or not verifiable at all. Never invest based on hollow words alone. Verify all statements and claims with independent third party information. Assume nothing is true until confirmed through due diligence.
  • (4) Manipulative Sales Practices: Intimidation, inadequate disclosures, non-traditional payment choices, inadequate diversification or improper asset allocation, encouraging you to invest based on trust, or rushing you into a decision with high pressure sales tactics are all examples of manipulative investment sales practices that deviate from proven professional standards of conduct. Never rush a decision or invest based on emotion. Due diligence will slow the sales process sufficiently to offset manipulative practices.
  • (5) Lack Of Transparency: All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.

That's it, I'm selling all my bitcoin before anything bad happens.  Thank you.  I'm sure a year from now I'll look back and see that this, indeed, was the right decision.
DrYe5
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June 28, 2011, 03:53:15 AM
 #14

A standard list of warning signs of financial fraud, as applied to Bitcoin exchanges.

  • (1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud. Investment fraud intentionally appeals to the basic human emotions of fear, greed, and wanting something for nothing so that you will make an irrational decision. Be wary of any salesman who draws out your emotions as part of the sales process. Due diligence is how you remove the emotion and base your decision on facts.
  • (2) Obfuscation and Misinformation: Fancy words and successful images are designed to win your trust by creating a façade of sophistication. Techno-babble is designed to intimidate you into not looking behind the facade. Multiple postings on the internet under various aliases are designed to create the appearance of many people involved. Professional images are designed to create trust. Always ask, "Where is the beef?" Never trust the façade, but instead look deeper to find real substance. Due diligence is how you look behind the veneer of obfuscation and misinformation to see if there is any real meat.
  • (3) Unverifiable Claims: Secrets of the rich, technological breakthroughs, patent pending formulas, government conspiracy theories,  and inside information are all examples of things that are either hard to verify or not verifiable at all. Never invest based on hollow words alone. Verify all statements and claims with independent third party information. Assume nothing is true until confirmed through due diligence.
  • (4) Manipulative Sales Practices: Intimidation, inadequate disclosures, non-traditional payment choices, inadequate diversification or improper asset allocation, encouraging you to invest based on trust, or rushing you into a decision with high pressure sales tactics are all examples of manipulative investment sales practices that deviate from proven professional standards of conduct. Never rush a decision or invest based on emotion. Due diligence will slow the sales process sufficiently to offset manipulative practices.
  • (5) Lack Of Transparency: All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.

That's it, I'm selling all my bitcoin before anything bad happens.  Thank you.  I'm sure a year from now I'll look back and see that this, indeed, was the right decision.

Non sequitur doesn't follow.

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Oldminer
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June 28, 2011, 03:54:21 AM
 #15

I read up to:


(1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud

and realised this couldnt be a post about Bitcoin...

If you like my post please feel free to give me some positive rep https://bitcointalk.org/index.php?action=trust;u=18639
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proudhon
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June 28, 2011, 03:58:05 AM
 #16

A standard list of warning signs of financial fraud, as applied to Bitcoin exchanges.

  • (1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud. Investment fraud intentionally appeals to the basic human emotions of fear, greed, and wanting something for nothing so that you will make an irrational decision. Be wary of any salesman who draws out your emotions as part of the sales process. Due diligence is how you remove the emotion and base your decision on facts.
  • (2) Obfuscation and Misinformation: Fancy words and successful images are designed to win your trust by creating a façade of sophistication. Techno-babble is designed to intimidate you into not looking behind the facade. Multiple postings on the internet under various aliases are designed to create the appearance of many people involved. Professional images are designed to create trust. Always ask, "Where is the beef?" Never trust the façade, but instead look deeper to find real substance. Due diligence is how you look behind the veneer of obfuscation and misinformation to see if there is any real meat.
  • (3) Unverifiable Claims: Secrets of the rich, technological breakthroughs, patent pending formulas, government conspiracy theories,  and inside information are all examples of things that are either hard to verify or not verifiable at all. Never invest based on hollow words alone. Verify all statements and claims with independent third party information. Assume nothing is true until confirmed through due diligence.
  • (4) Manipulative Sales Practices: Intimidation, inadequate disclosures, non-traditional payment choices, inadequate diversification or improper asset allocation, encouraging you to invest based on trust, or rushing you into a decision with high pressure sales tactics are all examples of manipulative investment sales practices that deviate from proven professional standards of conduct. Never rush a decision or invest based on emotion. Due diligence will slow the sales process sufficiently to offset manipulative practices.
  • (5) Lack Of Transparency: All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.

That's it, I'm selling all my bitcoin before anything bad happens.  Thank you.  I'm sure a year from now I'll look back and see that this, indeed, was the right decision.

Non sequitur doesn't follow.

'Non sequiter' means 'doesn't follow', so 'doesn't follow doesn't follow'?  In any event, I get it.  I'm just being cheeky. 
DrYe5
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June 28, 2011, 04:02:30 AM
 #17

A standard list of warning signs of financial fraud, as applied to Bitcoin exchanges.

  • (1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud. Investment fraud intentionally appeals to the basic human emotions of fear, greed, and wanting something for nothing so that you will make an irrational decision. Be wary of any salesman who draws out your emotions as part of the sales process. Due diligence is how you remove the emotion and base your decision on facts.
  • (2) Obfuscation and Misinformation: Fancy words and successful images are designed to win your trust by creating a façade of sophistication. Techno-babble is designed to intimidate you into not looking behind the facade. Multiple postings on the internet under various aliases are designed to create the appearance of many people involved. Professional images are designed to create trust. Always ask, "Where is the beef?" Never trust the façade, but instead look deeper to find real substance. Due diligence is how you look behind the veneer of obfuscation and misinformation to see if there is any real meat.
  • (3) Unverifiable Claims: Secrets of the rich, technological breakthroughs, patent pending formulas, government conspiracy theories,  and inside information are all examples of things that are either hard to verify or not verifiable at all. Never invest based on hollow words alone. Verify all statements and claims with independent third party information. Assume nothing is true until confirmed through due diligence.
  • (4) Manipulative Sales Practices: Intimidation, inadequate disclosures, non-traditional payment choices, inadequate diversification or improper asset allocation, encouraging you to invest based on trust, or rushing you into a decision with high pressure sales tactics are all examples of manipulative investment sales practices that deviate from proven professional standards of conduct. Never rush a decision or invest based on emotion. Due diligence will slow the sales process sufficiently to offset manipulative practices.
  • (5) Lack Of Transparency: All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.

That's it, I'm selling all my bitcoin before anything bad happens.  Thank you.  I'm sure a year from now I'll look back and see that this, indeed, was the right decision.

Non sequitur doesn't follow.

'Non sequiter' means 'doesn't follow', so 'doesn't follow doesn't follow'?  In any event, I get it.  I'm just being cheeky. 

 Grin

In any case... this is about the integrity of institutions on which we all rely. I mean Magic: The Gathering DB? Really?

...

I think the guy that moves the market went to bed...

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dr.bitcoin
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June 28, 2011, 04:57:17 AM
 #18

Mining for Bitcoins is not hard HUMAN work, because the GPUs do the job, not me with a pocket calculator  Grin
However, given the recent difficulty increase, it hardly qualifies as a get rich QUICK scheme  Grin  Grin  Grin
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June 28, 2011, 06:36:37 AM
 #19

A standard list of warning signs of financial fraud, as applied to Bitcoin exchanges.

  • (1) Sales Appeal: The hook designed to lure you in is get rich quick without risk or hard work. Above market returns, guarantees, low or no risk, and no effort required are all hallmarks of investment fraud. Investment fraud intentionally appeals to the basic human emotions of fear, greed, and wanting something for nothing so that you will make an irrational decision. Be wary of any salesman who draws out your emotions as part of the sales process. Due diligence is how you remove the emotion and base your decision on facts.
  • (2) Obfuscation and Misinformation: Fancy words and successful images are designed to win your trust by creating a façade of sophistication. Techno-babble is designed to intimidate you into not looking behind the facade. Multiple postings on the internet under various aliases are designed to create the appearance of many people involved. Professional images are designed to create trust. Always ask, "Where is the beef?" Never trust the façade, but instead look deeper to find real substance. Due diligence is how you look behind the veneer of obfuscation and misinformation to see if there is any real meat.
  • (3) Unverifiable Claims: Secrets of the rich, technological breakthroughs, patent pending formulas, government conspiracy theories,  and inside information are all examples of things that are either hard to verify or not verifiable at all. Never invest based on hollow words alone. Verify all statements and claims with independent third party information. Assume nothing is true until confirmed through due diligence.
  • (4) Manipulative Sales Practices: Intimidation, inadequate disclosures, non-traditional payment choices, inadequate diversification or improper asset allocation, encouraging you to invest based on trust, or rushing you into a decision with high pressure sales tactics are all examples of manipulative investment sales practices that deviate from proven professional standards of conduct. Never rush a decision or invest based on emotion. Due diligence will slow the sales process sufficiently to offset manipulative practices.
  • (5) Lack Of Transparency: All investment accounts should be registered separately in your name with an independent, third-party custodian, and all transactions in your investment accounts should be fully visible to you on a daily basis either through independent account statements or the custodian's web site. Avoid commingled, pooled funds where the manager has custody and possession and/or account activity statements are generated only by the manager and not by an independent third-party.
Overall it's a good list and I would like the owners of MtGox to read it and think it over - but implying that it all applies to bitcoin as a whole is manipulative.  For example

3) Unverifiable Claims - the technology of bitcoin is all opensource - you cannot have more transparent technology.  None of the things you list applies no patent pending formulas, nothing depends on government conspiracy or insider information (it's rather the opposite with all the transactions in public).

(5)  is completely off - you keep your bitcoins in your own wallet - you don't need any third parties.  

(4) and (2) at least would require some factual support - who do you suspect uses sock puppets to manipulate the market?  

(1) - nobody says bitcoin is risk free, I've never seen a similar claim.
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June 28, 2011, 08:01:20 AM
 #20

Standard list of warning signs of shills with an agenda, as applied to the bitcoin forums.

1) Sensationalist or alarmist topic titles designed to grab attention.

2) Fancy financial/legal jargon and sneering verbosity designed to give an appearance of authority and competence.

3) False analogies, appeal to authority, guilt by association.

4) Paranoia, mud slinging, FUD, conspiracy theories about secret developer cabals and exchanges that will run off with your money any day.

5) General lack of understanding of the underlying principles of the bitcoin technology and how it matters to society; lack of interest to even learn about those principles; lack of positive and constructive forum contributions.

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