BDT post mortem
Rethinking everything I've went through with Alberto and in particular the events of the past week, the most reasonable explanation is that Alberto is a serial scammer who has lied to me from day one, and tricked myself and others out of large amounts of our hard-earned money (the next explanation being that he is unbelievably incompetent, and pathologically lying in an attempt to hide this).
At a time I was euphoric about my positive experiences with the Bitcoin lending market (and I might write about that story in another post), I saw DeaDTerra's post about the original BDT IPO. I wanted to diversify my investments, and this looked like a lucrative new opportunity; I trusted DeaDTerra, who offered a personal obligation; and I sympathized with the underlying business, as I had multiple occasions to point out, BTC margin trading is extremely important and the Bitcoin economy suffers from not having a good place to do it. So I contacted DeaDTerra about a pre-IPO purchase. I also pointed out to him a critical flaw in the contract's buyback clause.
Shortly after he withdrew from the project due to the issues with REBATE (which should have been my first clue that I should stay away), and told me I can contact Alberto directly if I wished. I did. At that time Alberto informed me that he is looking for an IPO manager and offered me the position. I was reluctant at first since in addition to the responsibility it would require quite a bit of work, and I was extremely busy at the time (still am). I changed my mind when he very generously offered 1000 of his bonds as compensation (that should have been my second clue; scammers have an easier time offering good deals because they don't intend to hold up their end). With this fee it would certainly be worth my while. And it wasn't just about getting the money, it made me feel good to know that my time and skills are valued. Furthermore, I felt needed; I thought that with my skills I could make an actual contribution to how this project would turn out, and that I would do a better job than DeaDTerra with the IPO management. So I took the job. In retrospect, and however this story ends, that was possibly the biggest mistake of my life.
I lent Alberto 1000 BTC to get him started and then I went on to the due diligence process. The first action was to send a physical letter, because of the importance of knowing a valid address and because I knew it would take time. The letter did eventually arrived. I communicated with Alberto mostly by Skype chat. I asked him many questions about himself and his plans. He came off as highly dedicated and motivated, trying to build his long-term reputation by running successful ventures and sticking to his commitments. I can see how others people suspect him based on how trouble always seems to follow him and his clumsy public communication, but he always seemed reasonable and trustworthy in personal communication. As now seems to be the case, his powers of inspiring confidence (that's where the word "con" comes from) were simply too great for me to see through, as I've only had experience with petty thieves who can be spotted in a second, not with true con artists who can weave a plausible and detailed story.
I spent some time inquiring about the mechanics of his trading platform; he did not at all times seem very competent, not understanding things I expected him to (should have been third clue, someone with a legitimate business would have more knowledge about the business than a scammer). Didn't think that much of it; with some hard work, care and some help from me and others, he could make it work. In a way it made me want to work with him even more, as I would be in a position to make a contribution and also to offer paid consultation once the IPO is over.
I also read up on the story of his past startup Enso. It was a mess, a complete business failure and a lot of serious accusations made publicly against Alberto. That was a cause of some concern (which should have been my fourth clue), but Alberto gave me his own version of the events which seemed reasonable. He also did a pretty good job defending himself against the accusations, he didn't seem to hide it or run away from it. In a way it made him seem more rugged, willing to persevere in the face of hardships.
Offering 3% weekly interest was questionable, and I believe I warned Alberto about this; but at that time I had confidence in the Bitcoin lending market in which such rates are not unusual, and Alberto assured me that he knows what he's doing. It is after all his platform and bond. He gave me a spreadsheet detailing his business plan justifying the rate, which was a bit of a mess (fifth clue? Well these are all not really in chronological order). It was poorly formatted and had some material numerical mistakes. I had to shape it up a bit, in the end coming up with something which was a stretch but could plausibly justify the offered rate.
Finally, I came up with the idea of asking Jonathan Ryan Owens what he thinks of Alberto, as I know they've worked together. He didn't reply by the time we've agreed on announcing the IPO. By that time I've had enough evidence that I had no business being involved in this. But I wanted the Bitdaytrade platform to work and the IPO to work, and I've made the classical rationality blunder of letting my desire for something cloud my judgment of its likelihood. So I proceeded.
I made my best effort to clarify the extent of my familiarity with Alberto (which was fairly limited), that it is his responsibility to satisfy the bond contract and that it is the investors' responsibility to make the investment decision (and to ask any questions that they deem relevant). I used wording that reflected how I felt at the time; I wanted people to know about my favorable overall impression. I now see I should have given a much weaker endorsement, as people took it much more seriously than I intended.
A day later I got a response from JRO. I really, really wish he would have answered a day sooner. He told me that Alberto was involved in the development of Kronos, and it was hacked with funds stolen and this was attributed by the team to either malice or negligence of Alberto. If I knew this before the IPO announcement it would be enough for me to realize that whatever the case there's too much drama for me to want to associate with Alberto. But as it was already announced, I had to make a decision if it's worth retracting the IPO over. I didn't think that much of the event; mistakes happen, it wasn't entirely clear it's Alberto's fault, no evidence that he was malicious, and even if he had a security bug, he can still learn from it and build Bitdaytrade properly with some work and consultation. Alberto had his own version of the events (which involved some conspiracy theories about JRO, which were made more believable by the behavior of JRO himself). It seemed wrong to cancel the IPO again after it was already canceled once; and I didn't want to let all the time I spent on this go to waste, and felt bad for wasting Alberto's time.
I was however uneasy about this so I tried to extract more information. I decided to contact 3 random contacts of Alberto on Linkedin and ask them if they knew anything in favor or against Alberto. 2 replied saying they connected with him as Enso customers and didn't really know much one way or another. So I decided to proceed.
Then there was the decision of whether to change the IPO announcement to reflect the new information. I had already mentioned that Alberto has made mistakes in the past, and felt this fell under that scope without having to smear Alberto's name by listing every one. I also knew it would look bad if I changed the announcement after it was made. And it didn't materially affect my evaluation of Alberto. So I decided to leave it as is. I now understand this was a mistake, and I apologize for it; this was relevant information which investors had a right to know, and as long as money was not yet spent it was not too late.
Following that not much happened behind the scenes, I communicated with Alberto a lot but mostly about technical stuff with the IPO and platform. Fast forward to August 16 by which time all bonds were sold, 1500 were held by me in addition to ~1000 external debt. Bitdaytrade started getting hacked, but the fact that Alberto was still responsive (to me) was a good sign; and since communication isn't his forte I was a proxy for letting him explain his side. The panic selling didn't seem warranted and I commented as such, and bought some more bonds as my personal investment. I didn't however share my exact level of concern; it was not my intention to hide it, but it wasn't really relevant and this time it was too late to issue warnings - the money was all out and bondholders were trading between themselves, one person being tipped off into selling meaning another one has to buy it. It was still everyone's responsibility to make decisions based on the information which came to light.
It was clear to me that the situation cannot continue and demanded that Alberto start working on repaying his debt, and it was my priority to maximize the chance that everyone will be made whole (and to ensure his cooperation I wanted to keep the relationship amicable). After some delays he sent me 4200 BTC, which I thought was a huge positive sign that he is well on his way to resolving this. I used the funds to buy back bonds and recommended people to sell; while this was not enough to cover every bond, everyone who decided to sell at that time got to, with some to spare. And this again goes to personal investment responsibility; the same people who blame me for buying after my implicit recommendation, chose not to sell after my explicit recommendation, and after a lot of troublesome information was made public.
That's when the real problems started. I was under the impression that Alberto is in possession of most of the coins, and he just needs to move them around; but he then said that this is all his available coins, the rest he already either spent or converted to fiat. He also said that the funds he sent included the Bitdaytrade deposits, which he now needed to return. I sent him 2000 BTC to use for this (as I had earlier encouraged him to send all his coins with the promise that if he ran short I would help him out), and around that time I also exchanged the bonds in my possession for external debt, which now totaled 4000 BTC - much more than I was comfortable with, but I thought it was a temporary measure to aid in a quick resolution. He said he just needs to wire some funds to buy coins, and I decided to give him a few days to do it and resolve the matter. I also pressured him to liquidate the house he supposedly keeps as an investment, and he agreed to start working on it.
The days quickly turned into weeks with constant delays, excuses of why there's no money, and promises of various ways he'll get the money to pay for his immediate obligations and eventually to buy back the entire debt. Every time I thought, ok, he cooperated so far, just a few more days and this will all be behind us. I thought also that even if Alberto is not to be trusted, we still know his identity (which is why he cooperated so far) so he will eventually come through to save face; and I also thought that we have a better chance to get money from him by remaining amicable, and that too much pressure (e.g. by publicly attacking him) will just convince him to run away, missing a chance to recover more funds. And as long as he was still paying his coupons I felt it was reasonable to give a bit more time. During this time I have also consulted with some people in the Bitcoin community and some specialists (PIs, debt collection agencies) to try to be a bit more prepared for any escalation.
That changed when he failed to pay the Sep 7 coupon. I increased the pressure but he just continued with explanations why there's no money yet and why he can't provide the information I requested; each plausible-sounding on its own but together becoming increasingly suspicious. Furthermore, there was no evidence he actually used any of the money for Bitdaytrade withdrawals. I extended his deadline a bit after he has paid the delayed coupon; but as he has not made any more progress other than informing me that he has now lawyered up, I have no choice but to escalate the matter.
The asset trading has been frozen because at this point any trading would be more noise than signal. I don't know how this will end. Maybe Alberto will still cooperate to save face; maybe we can collect with legal or other means; maybe it's all gone. To date I have spent 85 hours on matters relating to BDT, and this doesn't include the loss of productivity due to the extreme stress this has caused me. My reputation which is of the utmost importance to me has been damaged and I could be looking at losing ~2500 BTC (4000 - 1000 - interest), or more if I pay for unsuccessful help by specialists. Other investors have also lost money, time and well-being, and for this I am sorry.
And what kills me is that I don't know for sure that I've learned any valuable lesson, because I already knew everything I needed in order to avoid this whole ordeal - I just didn't put it all together. I hope it will at least reinforce some of these ideas so that I'll be better applying them in the future. So what did I learn from this?
1. Everyone is guilty until proven innocent when he wants a lot of money from you (this doesn't work when the stakes are sending an innocent person to jail, but does when the worst that could happen is missing out on a business opportunity). Don't feel bad making a hard time for one in case he is honest if it means protection in case he is a scammer.
2. Be a good Bayesian. When there's a lot of evidence something is awry, it probably is - even if each piece isn't conclusive on its own, in aggregate they carry weight unless countered by equally strong evidence to the contrary (and no, having a nice conversation with someone in which he assures you of his good intentions doesn't count).
3. I'm not as good in judging people as I thought.
4. Make investment decisions when you're cool-headed - neither euphoric nor depressed.
5. It's never too late to change a course of action when the circumstances or your evaluation of them change. Avoid the sunk cost fallacy, and cut losses.
6. 3% per week really isn't credible, no matter what wonderful opportunities we thought Bitcoin enabled.
7. I should avoid getting myself into situations where my responsibilities to multiple people (myself included) stand in the way of complete transparency.