How did those big financial scams succeed for a while?

  Just as the cryptocurrency market is booming recently and investors are getting into madness, Musk suddenly tweeted in mid-May that Tesla has decided not to accept users using Bitcoin to pay for cars. The reason is that he believes that Bitcoin transactions and mining consume too much electricity and fossil energy, causing environmental pollution.
  Since then, the prices of digital currencies such as Bitcoin and Dogecoin have been cut in a few days. The entire currency market has suffered a bloodbath, more than one trillion dollars has evaporated, and countless investors have lost their money.
  Since the price of cryptocurrency often fluctuates greatly, many experts believe that this is a typical speculative bubble, or even a “Ponzi scheme.” The US Securities and Exchange Commission initiated a lawsuit against BitConnect, a digital currency that once existed, accusing it of a “Ponzi scheme.”
The earliest “drumming to pass flowers”

  The Ponzi scheme is named after Charles Ponzi, an Italian-American speculative businessman. In 1919, Ponzi, who had always dreamed of making a fortune, received a mail from Europe. When people sent international mail at that time, they usually attached a stamp coupon to the envelope. The recipient could exchange the stamp coupon into a stamp at the local post office and paste it on the reply letter. In this way, the responder does not need to pay for the expensive international mail fees out of his own pocket.

  Pounds found a business opportunity on this small stamp coupon. He keenly observed that the price of stamp coupons exchanged for local stamps in various countries is determined by international treaties, but the exchange rates of currencies of various countries are changing at any time. In theory, people can buy stamp coupons from countries whose currencies have just depreciated, and then exchange them for stamps in other countries, and use this method to arbitrage and earn the difference.
  Soon, Pounds built a securities trading company around this business model. But he was not eager to advertise on a large scale, but carefully managed his image. Ponzi would appear in social occasions such as coffee shops on the corner from time to time, “inadvertently” handing good cigars to his friends, and then suddenly bid farewell to each other, and ran to see his “important customers”-these are all to make people think of him He is a stingy businessman who is about to make a fortune but is unwilling to disclose too much information.
  Only in the case of repeated inquiries or persecution by others, will he “reluctantly” reveal to the other party the business opportunities for stamp coupon arbitrage he has discovered. He claims that he has agents throughout Europe. They can buy local stamp vouchers in large quantities at any time according to changes in currency exchange rates, and then take these stamp vouchers back to the United States to exchange them for more valuable stamps.

  He was not eager to advertise on a large scale, but carefully managed his image.

  When all the preparatory work is in place, Ponzi will promise that if the other party is willing to participate in this investment, they can get 50% of the profit after 90 days. Just a few months later, cash began to slowly flow into Ponzi’s pockets, but he did not use the money to buy stamp coupons, and the so-called “European agents” were nothing but fiction.
  Instead, Pounds began to recruit agents in the United States and personally trained them to market the investment to more people. If the agent negotiates a new deal, he (she) will receive a 10% commission. Some agents will also hire the next-level agent and give the other 5% commission.
  The news spread quickly because the first batch of investors actually received substantial returns. Pounds became a highly sought after “financial wizard.” In the summer of that year, the front pages of Boston’s major newspapers had news about him almost every day. In Ponzi’s autobiography, he boasted: “For those long-line investors, I am the magician who realizes their dreams and turns the poor into rich men overnight.”
  Ponzi’s stock exchange company is at its peak. During the period, the office opened from Boston to Maine and New Jersey, and eventually more than 40,000 people participated in the investment, with a total amount of up to 20 million U.S. dollars. Ponzi has also lived a life of drunkenness. He used the money he earned to buy shares in multiple companies and even the Hannover Trust Bank, which had refused to lend him $2,000.
  But soon, the high-profile businessman caught the attention of the US government. Officials of the United States Postal Service believe that it is unrealistic to use international stamp coupon exchange rates for arbitrage due to sound regulatory measures. The prosecutors soon launched an investigation into Ponzi’s company. After an independent investigation, the Boston Post, which once boasted about Ponzi, found that he was a criminal with a criminal record. He was sentenced to jail for forgery of checks in Canada and then tortured for traffickers in Atlanta, the United States.
  Soon after, the auditor appointed by the federal government discovered that Ponzi had not purchased stamps and coupons at all, and his company had a debt of 7 million U.S. dollars and was already unable to make ends meet. In August 1920, Ponzi declared bankruptcy and was sentenced to jail a few years later. The end of the farce caused countless people to go bankrupt, and six banks, including Hannover Trust Bank, went bankrupt.
  The loss suffered by investors is equivalent to 190 million U.S. dollars today. In 1934, Ponzi was sent back to Italy by the US government immediately after being released from prison. After returning to China, Ponzi did not want to repent and continued to cheat in the motherland, but he never succeeded. In 1949, the giant scam passed away sadly, leaving only $75 to pay for the funeral expenses before his death.
“Big lie” of the former chairman of Nasdaq

  Although Ponzi’s scam ended in less than a year, his great success has inspired future scammers. The most famous of these is Bernard Madoff.
  In 1960, Madoff, who was still in college, established an investment securities company named after him. He started buying some cheap stocks with the $5,000 he earned from odd jobs, and then he persuaded relatives and friends to participate in the investment. But two years later, the United States experienced a major stock market crash once in decades, and Madoff’s investment was hit hard, and he had to rely on his father-in-law who was an accountant to get out.
  Madoff has always been brooding about this failed investment experience. He believes that the main reason for his failure is that he did not enter the “core circle” of Wall Street, so he was passively beaten. Madoff, who was arrested and imprisoned years later, said in an interview with reporters: “We were a small company at the time, not members of the New York Stock Exchange.”

  Since BitConnect has been operating as a private organization and has not established a company, the government cannot even liquidate its assets.

  In the 1970s, Madoff was keen to seize business opportunities and was the first to use the computer that had just appeared at that time for quotations and transactions. In the 1980s, due to the high efficiency of the automated system and the success of the rebate system, Madoff’s investment securities company became the largest market maker on the New York Stock Exchange, taking up as much as 15% of the latter’s trading volume.

  Because of this, Madoff became the chairman of Nasdaq in 1990. In 2000, Madoff’s company already had assets of about 300 million U.S. dollars.
  At the same time, Madoff’s company established so-called “hedge funds.” The company claims that by investing in blue chip stocks with stable prices, as well as buying futures and options, investors can obtain a stable return of more than ten percent per year. Since Madoff has achieved great success in the field of securities trading, and his declared trading strategy does exist in reality, many investors have begun to hand over money to him for management. His customers include celebrities, charitable funds, educational institutions and even banks.

After the Ponzi scheme was revealed in 1920, investors gathered outside Charles Ponzi’s company

  In fact, Madoff did not use the money for any investment, but directly transferred them to his account with Chase Bank. Then, like Ponzi, he demolished the east wall to repair the west wall, and paid the old customers the money invested by the new customers. According to estimates, Madoff’s account may have brought hundreds of millions of dollars in revenue to the bank, so Chase Bank has never questioned the source of this money. In addition, the supervision of hedge funds by the United States Securities and Exchange Commission and other regulatory agencies was very unsound at that time. Various factors have allowed Madoff’s scam to continue to operate for decades without being immediately dismantled.
  In 2008, when the financial crisis caused a large number of customers to request withdrawals, only $200 million remained in Madoff’s Chase account. Unable to repay investors, Madoff confessed to his two sons that he was “finished” and that the company’s so-called “hedge fund” was a Ponzi scheme from the beginning, or in his words: “A big lie.” His son immediately reported the company’s illegal activities to the Securities Regulatory Bureau and the judicial department, and Madoff was finally arrested and imprisoned.
  In March of the following year, the court announced that Madoff had been sentenced to 150 years in prison for violating 11 federal laws, and his assets of $17 million had been confiscated. The final investigation revealed that Madoff’s company had defrauded as much as $64.8 billion from more than 4,800 customers. Madoff’s eldest son, Mark, committed suicide on the second anniversary of his father’s arrest. His other son, Andrew, died of cancer four years later. Madoff himself died in prison in April this year. Thus ended the largest Ponzi scheme in the history of American finance.
How to recover BitConnect?

  On May 28, the US Securities and Exchange Commission initiated a lawsuit against the founder and propagandist of the cryptocurrency BitConnect, accusing it of a Ponzi scheme.
  BitConnect used to be the top 20 cryptocurrency project in the world by market capitalization. Its currency price soared from US$0.17 when it was just released in 2016 to US$463 at the end of 2017. BitConnect’s “rental plan” allows users to exchange Bitcoin for BitConnect coins, and then the platform will lock the market price of BitConnect at the time of exchange, and then use “trading robots” and “market floating software” to earn users up to 1% of daily income .
  In January 2018, the Texas Securities Commission determined that this lease plan was a Ponzi scheme: BitConnect was actually using the money of the new investors to pay the interest of the old investors. BitConnect was ordered to close shortly afterwards, losing more than 90% of its market value within a few days. Countless investors did not want to rent back bitcoin or cash, but got worthless BitConnect coins.

On March 10, 2009, in New York, USA, Bernard Madoff, the principal culprit of the largest Ponzi scheme in American history, arrived at the court

  Until now, no one knows whether there are so-called trading robots and software. The Securities and Exchange Commission believes that BitConnect issued securities worth more than $2 billion without obtaining a license to practice. Its founder is currently under control, but because BitConnect has been operating as a private organization and has not established a company, the government cannot even liquidate its assets. The many victims of this scam may never be compensated.
Insight into the success of human nature

  From the above famous Ponzi scheme, we can summarize several fixed paradigms.
  The scammer must first create a persona and construct a narrative. Ponzi first modeled himself as a successful businessman, and then came up with a set of business models that sounded profitable; Madoff had previous market-making achievements, the status of Nasdaq chairman, and he could come up with one A theoretical trading strategy; BitConnect, like Bitcoin, promises to establish a transparent, open, and decentralized financial system.
  The second characteristic of this type of scam is that it makes full use of the asymmetry of information. Most Americans cannot go to Europe to verify whether Ponzi has purchased stamp coupons; investors in the Madoff Fund don’t know what their money is invested in; most people who buy BitConnect will not check the source of the project. Code. In this way, it can be ensured that the deception will not be dismantled for a long time.

On February 24, 2009, an illustration of Ponzi scheme master Bernard Madoff appeared on the cover of “New York” magazine, who was portrayed as a “clown”

On June 1, 2011, Miami, USA, Bernard Madoff’s personal belongings are on display

  Finally, the designers of the scam have insight into human nature and make full use of people’s various psychological demands. Most people feel jealous when they see people around them getting rich, and they can’t help but get involved. When the entire Boston media are reporting on an investment product with such a lucrative return, it is difficult for ordinary people not to be fooled. Madoff took advantage of people’s fear of risk and convinced investors that his fund could provide stable returns regardless of market performance.

  Madoff took advantage of people’s fear of risk to convince investors that his fund can provide stable returns regardless of market performance.

  Finally, it is a fluke. Many BitConnect investors are aware that the ultra-high daily interest rate of 1% is unsustainable, but they believe that as long as they appear before the scam is exposed, they can avoid losses and pass the risk to others behind.
  After most people taste the sweetness, the dopamine secreted by the brain will make them lose their minds and immediately want to make more money until they are finally stuck in it. This is the physiological mechanism by which gambling can be addictive. After the scam meets these conditions, the well-known “removal of the east wall and repair the west wall” can be effective.

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