HYIP Scams: Charles Ponzi Would Be Proud

A week or so back I did a story about how online scams, pyramid schemes and Ponzi frauds were alive and well swindling Internet money from people around the globe. I tried to illustrate how digital gold currency is the preferred method of payment for most scam operators. Millions…no TENS of millions in dollars and euros from strangers around the globe are channeled directly into the pockets of online thieves using digital currency.

Everyone I know is aware of these operations but pretty much echoes the same responses, some of which ring like this, “its not my responsibility or my job to police the Internet” or “…if people want to play and throw their money away, that is their business” and finally the mother of all excuses, “…its legal in their jurisdiction so shut up and mind your business.”

I would just like to say regarding that last excuse, no, its not and never has been legal or ethical to lie, cheat and steal money from strangers. It was not acceptable in the 1920 when Charles Ponzi did it and it is by no means acceptable in today’s business world. The invention of the Internet and the introduction of digital currency has made it possible to scam from 9,000 miles away behind a wall of proxies…but that still does not make it legal or proper.

Ponzi and Pyramid scams which con people out of their money were not invented by the Internet. Everyone knows that Ponzi scams get the name from Charles Ponzi and his illustrious career as a swindler in the early days of the 20 century. But Charles Ponzi was arrested and went to prison for his crime. That’s right, it was a crime and still is..

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns (”profits”) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. *wikipedia

In one of Charles Ponzi’s early scams around 1920 he offered investors a 50% return on their money in 45 days, or a doubling of their money in 90 days. Sound familiar?

By February 1920, Ponzi’s best known scam had taken in $5,000 USD, by March, he was up to $30,000. At that time Ponzi began hiring agents to expand his swindle. By pushing his impressive high rate of return, he could often persuade would-be investors to send money. In May 1920, he was up to $420,000 and by July 1920, he was up to millions. Widows were mortgaging their homes, people were taking their life savings to invest with the clever Ponzi. Most did not collect their interest, but reinvested. As long as money kept flowing in, Ponzi would stay ahead of the eventual collapse. Ponzi even had hired a publicity agent.

By August, Ponzi was under arrest, with a Federal indictment citing 86 counts of fraud. 17 thousand people had invested millions, maybe tens of millions, with Ponzi. He was eventually convicted of mail fraud, which is almost identical to wire fraud….government investigators tried to trace Ponzi’s convoluted accounts to figure out how much money he had taken and where it had gone. They never managed to untangle it, and could only conclude that millions had gone through his hands. *wikipedia

In 2007…today…what would prevent these HYIP scams from operating online? (I’m not a lawyer or prosecutor and just because I have access to Wikipedia, this does not allow me to play a lawyer on the Internet)

I don’t know, but here is one possible accurate sounding representation of what is occuring.

Wire Fraud?

Wire Fraud is a crime that takes place when a person, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.

If I go on the Internet and sell a phony cancer cure for 1000$ a bottle and accept digital currency as my preferred method of payment, have I committed wire fraud or some other sort of fraud? If I set up a web site that advertises I can pay a 600% return on ‘invested’ funds each year then simply steal $4 million of client funds…have I committed wire fraud? I’m no legal eagle, I’m not even a novice, but it seems the ’spirit’ of that law may still be applicable here.

How is it possible that HYIPs are allowed to clog the Internet with Ponzis and their operators always keep the money and run?

In July of this year, William Richard Vorburger, Jr., of Oxnard, please guilty in US District Court to one count of mail fraud and one count of money laundering related to a fraud scheme where he solicited and received investments of approximately $1 million to his fraudulent investment companies. In his plea agreement, Vorburger admitted to fraudulently soliciting investments by telling his ‘victims’ that they would receive a high rate of return. He also admitted that none of his businesses were operating or ever made one dollar of profit. Does that sound familiar? Vorburger now faces a statutory maximum 40 years in federal prison. Sentencing is later this year. *lawfuel

HYIPs each week steal millions from people via the Internet. Why is Richard Vorburger now facing 40 years in prison while HYIP operators are out enjoying the good life without fear of legal or civil action?

That could be their new industry slogan, “HYIP…no fear!” What brilliant legal concept says, HYIPs are OK but what Vorberger did was wrong ?

The actions of Charles Ponzi were illegal and if that had occurred in the 1960’s, 1970’s or 1980’s it would have still been illegal and wrong.

Why, since the invention of the Internet, is it acceptable to fleece people in High Yield Fraud Schemes? If it was wrong back in the 1920’s and its still illegal, why does an entire industry turn a blind eye to the fraud?

Ah, what is the real question here? “Why do some scam operators get stopped or caught and others slide by?”, “Who gets nabbed and who walks?”

It seems in today’s world since some of the digital currency operators are not going to work towards preventing the activity, there is a ‘fly below radar workaround’ which allows operators to avoid legal problems.  As I have said before, if you get too big ($10-$12million) you will get nabbed. (SEC v. CEP Holdings, 5000 investors, $12million Auto Surf Ponzi) Keep it under a million and no one gets upset, its shameful.

If the digital currency operators, agents and industry won’t bother with stopping, blocking or preventing Ponzi scams, who will?

You don’t have to be psychic to know what government agency will do it for you.

In a reported self regulated industry, isn’t ignoring a big problem like this just screaming for government and law enforcement intervention?

Please move now to block and prevent these frauds and any further large scale complaints, the sooner the better for us all.