HN Gopher Feed (2017-10-03) - page 1 of 10 ___________________________________________________________________
Ponzi Schemes Using Virtual Currencies (2014) [pdf]
64 points by fludlight
https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdfngopher.com___________________________________________________________________
arno_v - 2 hours ago
Would be interesting if they would give examples of ICOs or other
crypto related investments which turned out to be Ponzi schemes or
fraud.
fludlight - 2 hours ago
Investor Alert: Public Companies Making ICO-Related Claims [1]SEC
Exposes Two Initial Coin Offerings Purportedly Backed by Real
Estate and Diamonds [2] [3]SEC Issues Investigative Report
Concluding DAO Tokens, a Digital Asset, Were Securities [4]
[5]SEC v. Trendon T. Shavers and Bitcoin Savings and Trust
[6]SEC v. Garza, GAW Miners, and ZenMiner [7][1]
https://www.sec.gov/oiea/investor-alerts-and-
bulletins/ia_ic...[2] https://www.sec.gov/news/press-
release/2017-185-0[3]
https://www.sec.gov/litigation/complaints/2017/comp-
pr2017-1...[4] https://www.sec.gov/news/press-release/2017-131[5]
https://www.sec.gov/litigation/investreport/34-81207.pdf[6]
https://www.sec.gov/litigation/complaints/2013/comp-
pr2013-1...[7]
https://www.sec.gov/litigation/complaints/2015/comp23415.pdf
SippinLean - 3 hours ago
Seems that most of there are examples of fraud instead of a Ponzi
specifically. They list a single example of using Bitcoins as part
of a Ponzi scheme, but no examples of ICOs being Ponzi schemes.
Based on OP's submission immediately prior I believe this is what
they were trying to suggest.
joe_the_user - 2 hours ago
Well they say: "We are concerned that the rising use of virtual
currencies in the global marketplace may entice fraudsters to
lure investors into Ponzi and other schemes in which these
currencies are used to facilitate fraudulent, or simply
fabricated, investments or transactions."Which reasonably
straight forward.
whataretensors - 2 hours ago
"No minimum investor qualifications. Most legitimate private
investment opportunities require you to be an accredited investor.
You should be highly skeptical of investment opportunities that do
not ask about your salary or net worth."This is a ridiculous
regulation that prohibits class mobility as software eats the
world. Apparently being middle class means you are too stupid to
realize you are being scammed, but if you are rich you get first
pick.
whataretensors - 2 hours ago
To further elaborate - a young student putting in $1000 in
facebook seed round would now be a millionaire. Not unthinkable
for someone like a young Warren Buffet. The government has
successfully regulated the future to the top 1%, while claiming
it's for the public good.
sharemywin - 2 hours ago
Title IV (Regulation A+) of the JOBS Act
mitchellst - 2 hours ago
OK sure, but it assumes that young student would be able to
discriminate a money-making investment from a money-losing
one-- something the best VC's in the business, who vet tech
deals all day every day, struggle to do.Imagine you repeal all
accredited investment regs overnight. Which of these seems
likely:- everyone in america invests $1000 in a future
facebook, ten years later we're a nation of millionaires.- 10%
of the middle class (a huge number of people) wholly or
partially cashes out retirement funds to put too much money
into speculative early stage startups chasing fantastic
returns. They lose it. Kids lose college funds, adults lose
retirement funds, and we / society / government has to pick up
the tab when such people get too old to work.The point is, it's
easy to attack these regulations as a barrier to opportunity
and an unfair impediment to your right to do whatever you want
with your own money. That's fair as far as it goes, but you
also have to grapple with the real consequences of changing the
policy. I have a hard time with your analysis that accredited
investment rules have no "public good."Phrased differently,the
view on the ground in middle America is this: lots of middle-
class people buy lottery tickets. Why do you suppose they do
that?
whataretensors - 1 hours ago
Young Warren Buffet could.I can go to Vegas and lose all my
money on dice. There aren't laws to prevent this. Why are
there laws to prevent my ability to invest?The regulation
makes more sense as a way to keep the opportunities exclusive
to the powerful, while regulators get to claim a moral high
ground.
wakamoleguy - 1 hours ago
In many places in the United States, there actually are
laws to prevent gambling.
lojack - 51 minutes ago
That?s clearly a straw man argument.A) The federal
government doesn?t ban gambling.B) As far as I?m aware
there isn?t a single place in this country where gambling
is/isn?t allowed for those with specific net worths.
wakamoleguy - 9 minutes ago
It's not a strawman. The parent is suggesting that we as
a people have no problem with allowing low-income or low-
net-worth people to gamble (pointing to the acceptance of
Las Vegas as evidence). Then an equivalence is drawn
between gambling and securities investing. By pointing
out that, in fact, 31 states make commercial casinos
illegal[1], I am refuting the suggestion that gambling is
considered acceptable, which weakens the argument that
securities investing should be acceptable as well.[1] htt
ps://en.wikipedia.org/wiki/Gambling_in_the_United_States
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nkrisc - 1 hours ago
You already have the opportunity to bankrupt yourself with
lottery tickets and casinos, yet most people don't.
cm2187 - 2 hours ago
I have seen enough "super-smart" investors pretending to be dumb,
unsophisticated and to have never been told of the risks when an
investment goes bad not to have some sympathy for these investor
sophistication thresholds.
sharemywin - 2 hours ago
On April 5, 2012, President Obama signed a landmark piece of bi-
partisan legislation called The JOBS Act into law. The JOBS Act
greatly expanded entrepreneurs? access to capital, allowing them
to go to the crowd and publicly advertise their capital
raises.Initially, private companies could only crowdfund from
accredited investors, the wealthiest 2% of Americans. On June 19,
2015, three years after the JOBS Act was initially signed into
law, Title IV (Regulation A+) of the JOBS Act went into effect.
For the first time, Title IV allows private growth-stage
companies to raise money from all
Americans.https://www.seedinvest.com/blog/jobs-act/raising-
capital-reg...
whataretensors - 2 hours ago
I'm aware of the JOBS act. It's still a different system than
the rich get to use.Edit: not sure why I'm downvoted. Middle
class can't invest in filecoin, for instance, even though the
top tier can.
nick_ - 2 hours ago
The crypto-currency the world needs is one which detects
pyramid/ponzi schemes and fraud in general.
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TaylorGood - 2 hours ago
Ponzi aside, let's say it's the greatest cryptocurrency idea. The
SEC has right to use their Howey Test to determine whether it's a
security. Based on 1,2,4 below, is this not ICO's?Under the Howey
Test, a transaction is a security (or investment contract) if:1. It
is an investment of money2. There is an expectation of profits from
the investment3. The investment of money is in a common
enterprise4. Any profit comes from the efforts of a promoter or
third partyBased on their recent cyber division being announced,
there is seemingly a strong possibility of review/conviction if
launching an ICO as a US citizen, no? Soliciting an unregistered
security carries 20yr prison term. Are dev's factoring this as
possible risk?
xdeqx366 - 1 hours ago
As a crypto-developer working in the blockchain space, my
primary company has opted to do an ICO as part of its operations.
The company has existing VC backing of between 4-10 million, and
the project would benefit from blockchain - for one aspect. By no
means is a new token necessary, but that fact seems to have been
side-stepped. The product exists, and perceivably the token
could be usable upon issuance...I enjoy working on the crypto for
the project, but I concern myself with the eventual legalities of
the ICO and how it might change the companies incentives
internally.I have bills to pay, leaving on principle alone isn't
viable for me, but, if it could impact on my family, I will.I
am not a lawyer, and the answers don't appear to be black and
white.
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xdeqx366 - 1 hours ago
Is "common enterprise" the only distinction between gambling and
a security?
unkown-unknowns - 1 hours ago
How many of the Howey test questions must be "yes"? All? Any?
More than x number of them?
lostmsu - 1 hours ago
They all seem to BE "yes "IMHO. So does it matter that much?
wakamoleguy - 1 hours ago
It seems that in practice, yes, most people who are buying into
ICOs have an expectation of profits based on the
actions/development/promotion of a third party team running the
project. Matt Levine talked about some of the nuances of this
back when the SEC released a report about the DAO[1].A couple
days ago, I stumbled across a blog post of the Colony.IO
project[2], who are creating a token and blockchain platform for
distributed organizational management (coincidentally similar in
concept to the DAO). They go into detail about their plans for
having an ICO only once they have a product actively functional.
The hopes are that with a working product, people buying the
tokens will do so with the expectation that it is a sale of
services, rather than an investment security. Now, their
perspective is that of the team and their lawyers, and not
necessarily that of the SEC. But if there is hope that ICOs won't
all be securities, I think that is the pathway.[1]
https://www.bloomberg.com/view/articles/2017-07-26/tokens-
va...[2] https://blog.colony.io/the-colony-token-sale-
7ac14c845bc0
rebuilder - 3 hours ago
This was published 2014/03/11 as far as I can tell, if anyone is
wondering.
sctb - 2 hours ago
Thanks! We've updated the headline.
fmeyer - 2 hours ago
It happened in Brazil recently, where one company created a fake
cryptocurrency and used it on its Ponzi scheme.source:
https://translate.google.com/translate?hl=en&sl=pt&tl=en&u=h...
SippinLean - 2 hours ago
It specifically says that it was a multilevel marketing/pyramid
scheme, not a Ponzi scheme.
ravishi - 2 hours ago
Although I don't know the specifics of the scheme, it seemed
like a pyramid scheme while it was running, but turned out to
be a ponzi scheme when it went down. I would bet the people
reporting don't know the difference between the two. I didn't
until now.
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