1 00:00:04,440 --> 00:00:12,600 Speaker 1: Welcome to tech Stuff, a production from iHeartRadio. Hey there, 2 00:00:12,640 --> 00:00:16,440 Speaker 1: and welcome to tech Stuff. I'm your host, Jonathan Strickland. 3 00:00:16,480 --> 00:00:20,239 Speaker 1: I'm an executive producer with iHeartRadio. And how the tech 4 00:00:20,280 --> 00:00:23,720 Speaker 1: are you? I'm not doing so hot myself. I believe 5 00:00:24,160 --> 00:00:27,920 Speaker 1: that I am suffering from food poisoning. I was wondering 6 00:00:27,960 --> 00:00:31,320 Speaker 1: what the heck was going on. Hit me started hitting 7 00:00:31,360 --> 00:00:34,320 Speaker 1: me last night, and I went through a whole bunch 8 00:00:34,320 --> 00:00:37,440 Speaker 1: of different possibilities. But it was weird because I was like, 9 00:00:37,600 --> 00:00:41,240 Speaker 1: how could I have caught the flu or COVID or 10 00:00:41,280 --> 00:00:43,120 Speaker 1: anything like that because I hadn't even left the house 11 00:00:43,159 --> 00:00:46,080 Speaker 1: for more than a week. But yeah, I think I 12 00:00:46,120 --> 00:00:48,560 Speaker 1: think I ate something that didn't agree with me. And 13 00:00:48,680 --> 00:00:51,919 Speaker 1: as a result, we're going to go to a rerun 14 00:00:51,960 --> 00:00:55,520 Speaker 1: episode of tech Stuff because I just don't have it 15 00:00:55,600 --> 00:00:59,680 Speaker 1: in me to research, write, and record a brand new one. 16 00:00:59,760 --> 00:01:02,240 Speaker 1: My apologies to all of you. You all deserve better, 17 00:01:03,160 --> 00:01:07,200 Speaker 1: but yeah, it's just just just not in the cards 18 00:01:07,200 --> 00:01:10,720 Speaker 1: for me today. So we're going to listen to an 19 00:01:10,720 --> 00:01:14,880 Speaker 1: episode that published January twenty fifth, twenty twenty one, and 20 00:01:14,959 --> 00:01:20,400 Speaker 1: it's called It's a Brackets Crypto Closed Brackets Ponzi scheme, 21 00:01:20,880 --> 00:01:24,360 Speaker 1: and yeah, I talk about, you know, what a Ponzi 22 00:01:24,360 --> 00:01:28,959 Speaker 1: scheme is, and how a lot of cryptocurrency companies have 23 00:01:29,200 --> 00:01:34,399 Speaker 1: been equated to Ponzi schemes, and yeah, some people even 24 00:01:34,440 --> 00:01:36,080 Speaker 1: go so far as to say the whole thing is 25 00:01:36,120 --> 00:01:39,360 Speaker 1: a Ponzi scheme. I wouldn't quite go that far, but 26 00:01:39,440 --> 00:01:43,119 Speaker 1: I definitely think that the crypto world and the enthusiasm 27 00:01:43,160 --> 00:01:51,400 Speaker 1: around it facilitates shenanigans and dishonest practices, So I think 28 00:01:51,400 --> 00:01:54,680 Speaker 1: that that is an issue. Anyway, let's listen to It's 29 00:01:54,760 --> 00:02:00,840 Speaker 1: a Crypto Ponzi Scheme from January twenty fifth, twenty twenty one. 30 00:02:02,240 --> 00:02:04,760 Speaker 1: So in this episode, we're going to explore where the 31 00:02:04,800 --> 00:02:08,080 Speaker 1: Ponzi scheme comes from and how it works in general, 32 00:02:08,320 --> 00:02:11,560 Speaker 1: and we'll learn about cryptocurrencies and a little bit about 33 00:02:11,560 --> 00:02:14,280 Speaker 1: what makes them tick from a very high level, and 34 00:02:14,320 --> 00:02:17,320 Speaker 1: then we'll learn how these two things came together, kind 35 00:02:17,360 --> 00:02:22,280 Speaker 1: of like a Reese's Peanut buttercup and just as evil. Now, 36 00:02:22,600 --> 00:02:25,720 Speaker 1: fans of stuff you should know might be aware that way. 37 00:02:25,800 --> 00:02:28,240 Speaker 1: You back in two thousand and nine, which was, you know, 38 00:02:28,320 --> 00:02:32,840 Speaker 1: one year into us doing podcasts at all, they did 39 00:02:33,040 --> 00:02:35,960 Speaker 1: how Ponzi schemes work. It gave birth to the phrase 40 00:02:36,160 --> 00:02:39,800 Speaker 1: it's a Ponzi scheme, and so I apologize to those 41 00:02:39,880 --> 00:02:43,560 Speaker 1: longtime fans who also listened to my show, because there's 42 00:02:43,639 --> 00:02:47,400 Speaker 1: got to be some overlap between those two, right anyway. 43 00:02:47,919 --> 00:02:50,800 Speaker 1: I know I won't be as entertaining as Josh and Chuck, 44 00:02:51,160 --> 00:02:53,680 Speaker 1: but then there are two of them and there's only 45 00:02:53,720 --> 00:02:56,280 Speaker 1: one of me. However, I will give it the old 46 00:02:56,280 --> 00:03:00,480 Speaker 1: college try. Now. The term Ponzi scheme gets its name 47 00:03:00,520 --> 00:03:05,520 Speaker 1: from a specific man, Charles Scheme. Wait, no, I'm sorry, 48 00:03:05,560 --> 00:03:09,160 Speaker 1: I read that wrong, Charles Ponzi. He would be investigated 49 00:03:09,200 --> 00:03:12,079 Speaker 1: and charged for fraud in the nineteen twenties, but the 50 00:03:12,120 --> 00:03:17,359 Speaker 1: actual method predates Chuckarino by several decades. An earlier example 51 00:03:17,480 --> 00:03:19,840 Speaker 1: of the scheme that Ponzi used was the method of 52 00:03:19,919 --> 00:03:23,959 Speaker 1: choice for one Sarah Howe in Boston in eighteen seventy nine. 53 00:03:24,600 --> 00:03:27,800 Speaker 1: Even this was not the first instance. There were at 54 00:03:27,880 --> 00:03:31,280 Speaker 1: least two other cases of very similar schemes, one in Madrid, 55 00:03:31,360 --> 00:03:35,440 Speaker 1: Spain and another in Berlin, Germany, both perpetrated by women, 56 00:03:35,800 --> 00:03:38,880 Speaker 1: and the general idea is much much older. But let's 57 00:03:38,880 --> 00:03:42,080 Speaker 1: explore the story of Sarah Howe. I'd love to tell 58 00:03:42,120 --> 00:03:45,960 Speaker 1: you all about Sarah Howe, but historical records of her 59 00:03:46,080 --> 00:03:49,640 Speaker 1: are scant. There are no known photographs of her, there 60 00:03:49,640 --> 00:03:53,720 Speaker 1: are no sketches. Few details are about her past. At 61 00:03:53,800 --> 00:03:57,840 Speaker 1: least few verifiable details will get to that. We do 62 00:03:58,000 --> 00:04:00,480 Speaker 1: know that in eighteen seventy seven she was working in 63 00:04:00,520 --> 00:04:03,520 Speaker 1: Boston as a fortune teller, so we can assume a 64 00:04:03,560 --> 00:04:07,680 Speaker 1: few things. Now. Pardon me, because I am a skeptic. 65 00:04:08,120 --> 00:04:12,440 Speaker 1: So if you believe in stuff like astrology or fortune telling, 66 00:04:13,080 --> 00:04:15,120 Speaker 1: you're likely going to find what I have to say 67 00:04:15,200 --> 00:04:18,640 Speaker 1: pretty irritating. But people who are really good at doing 68 00:04:18,680 --> 00:04:22,919 Speaker 1: stuff like reading fortunes or doing astrology readings tend to 69 00:04:22,920 --> 00:04:26,120 Speaker 1: be very good at making quick judgments about people, and 70 00:04:26,120 --> 00:04:28,360 Speaker 1: they also tend to know what sort of things are 71 00:04:28,440 --> 00:04:32,920 Speaker 1: part of the commonly shared human condition. There's a practice 72 00:04:33,040 --> 00:04:37,279 Speaker 1: that's called cold reading, and here's how it works. You've 73 00:04:37,279 --> 00:04:41,240 Speaker 1: got your fortune teller or your mentalist or whatever, and 74 00:04:41,320 --> 00:04:45,200 Speaker 1: they spout out a bunch of general information toward their mark. 75 00:04:45,560 --> 00:04:49,440 Speaker 1: Often they are actually addressing a group of people, because 76 00:04:49,480 --> 00:04:51,920 Speaker 1: that increases the odds of getting a hit if you're 77 00:04:51,960 --> 00:04:54,799 Speaker 1: talking to more than one person. But the whole goal 78 00:04:54,920 --> 00:04:58,200 Speaker 1: is to cast a wide net so that something that 79 00:04:58,400 --> 00:05:02,080 Speaker 1: the person ends up saying ends up being perceived as relevant, 80 00:05:02,440 --> 00:05:04,800 Speaker 1: and you make the mark do most of the work 81 00:05:04,880 --> 00:05:08,599 Speaker 1: for you. You don't have to know anything about that person. 82 00:05:08,960 --> 00:05:11,760 Speaker 1: As long as you get close enough to something that 83 00:05:11,920 --> 00:05:15,600 Speaker 1: is relevant to that person's life, they're likely to do 84 00:05:15,640 --> 00:05:18,839 Speaker 1: the rest of the work for you. So here's kind 85 00:05:18,880 --> 00:05:24,800 Speaker 1: of an example, just as a hypothetical. Let's say that 86 00:05:25,360 --> 00:05:28,839 Speaker 1: the mentalist or fortune teller says, I, since you have 87 00:05:29,000 --> 00:05:33,440 Speaker 1: experienced great happiness but also suffer great loss, and I'm 88 00:05:33,440 --> 00:05:36,120 Speaker 1: picking up on a name. It might start with the 89 00:05:36,200 --> 00:05:40,400 Speaker 1: letter J or maybe R. The vision is hazy, and 90 00:05:40,520 --> 00:05:42,840 Speaker 1: meanwhile you're waiting for your mark to fill in the gaps. 91 00:05:42,839 --> 00:05:46,200 Speaker 1: And people tend to be people pleasers, and they want 92 00:05:46,360 --> 00:05:49,560 Speaker 1: to believe in these sort of things, and so they 93 00:05:49,640 --> 00:05:52,760 Speaker 1: become willing participants. So you might have a mark say 94 00:05:52,839 --> 00:05:55,720 Speaker 1: I had an uncle named Jason, or my sister's name 95 00:05:55,760 --> 00:05:58,680 Speaker 1: is Rachel or whatever. And to the mark, it seems 96 00:05:58,720 --> 00:06:02,000 Speaker 1: as though you, as the fortune teller, have divined something 97 00:06:02,000 --> 00:06:04,599 Speaker 1: you couldn't possibly have known, but in fact they're the 98 00:06:04,600 --> 00:06:07,040 Speaker 1: ones who are providing you with all the information, and 99 00:06:07,080 --> 00:06:10,000 Speaker 1: you just go from there. And on a similar note, 100 00:06:10,120 --> 00:06:13,599 Speaker 1: astrological readings tend to follow a similar approach by giving 101 00:06:13,600 --> 00:06:17,599 Speaker 1: out a very general message that can apply to nearly anyone. 102 00:06:18,360 --> 00:06:20,760 Speaker 1: A fun test to do is to take a horoscope 103 00:06:20,800 --> 00:06:22,800 Speaker 1: for a day and see if you can figure out 104 00:06:22,839 --> 00:06:26,440 Speaker 1: which of the horoscopes belongs to which sign. But you 105 00:06:26,520 --> 00:06:29,200 Speaker 1: mix them all up so that way you can't see 106 00:06:29,720 --> 00:06:33,040 Speaker 1: the sign matched with the horoscope. You're just getting the messages. 107 00:06:33,440 --> 00:06:37,640 Speaker 1: And then you have somebody else who has an undoctored 108 00:06:37,920 --> 00:06:40,480 Speaker 1: version of the document to see if you can actually 109 00:06:40,520 --> 00:06:42,080 Speaker 1: match it up. And if you do it as a 110 00:06:42,080 --> 00:06:45,120 Speaker 1: double blind, really like if the person who is recording 111 00:06:45,160 --> 00:06:49,080 Speaker 1: your answers does not have access to those answers right away, 112 00:06:49,400 --> 00:06:51,640 Speaker 1: you're probably going to find out that your success rate 113 00:06:51,760 --> 00:06:55,440 Speaker 1: is about what chance would suggest. Double blind tests that 114 00:06:55,520 --> 00:06:58,440 Speaker 1: try to match people with horoscopes show that there's not 115 00:06:58,480 --> 00:07:01,760 Speaker 1: really any correlation there, but hey, what do I know? 116 00:07:02,400 --> 00:07:06,720 Speaker 1: I'm a cancer. There are also warm readings. This is 117 00:07:06,760 --> 00:07:10,760 Speaker 1: where you start already knowing something about the mark, perhaps 118 00:07:10,840 --> 00:07:13,400 Speaker 1: through the help of an accomplice. But the reason I 119 00:07:13,400 --> 00:07:16,280 Speaker 1: even bring this up is that miss Howe must have 120 00:07:16,400 --> 00:07:19,400 Speaker 1: had a decent knack at reading people, which would come 121 00:07:19,400 --> 00:07:22,240 Speaker 1: in very handy when it came time to fleece them. Later, 122 00:07:23,120 --> 00:07:27,680 Speaker 1: in eighteen seventy eight, How launched the Ladies Deposit Company, 123 00:07:27,920 --> 00:07:33,440 Speaker 1: which was ostensibly a bank. How recognized an opportunity. Unmarried 124 00:07:33,480 --> 00:07:37,440 Speaker 1: women who had no guardian had difficulty establishing an account 125 00:07:37,480 --> 00:07:41,600 Speaker 1: at traditional banks because it was a pretty darn patriarchal 126 00:07:41,680 --> 00:07:45,840 Speaker 1: society and unmarried women were second class citizens. And I 127 00:07:45,880 --> 00:07:49,160 Speaker 1: should also mention that at this time, if you weren't white, 128 00:07:49,280 --> 00:07:52,480 Speaker 1: you had an even more difficult time accessing the basic 129 00:07:52,560 --> 00:07:57,000 Speaker 1: functions of society. Even How, when she was making the 130 00:07:57,120 --> 00:08:03,080 Speaker 1: Ladies Deposit Company was only catering to white unmarried women. Essentially, 131 00:08:03,600 --> 00:08:06,520 Speaker 1: white men had access to everything and everyone else was 132 00:08:06,560 --> 00:08:10,239 Speaker 1: dealing with an enormous amount of opposition. So How opened 133 00:08:10,320 --> 00:08:13,320 Speaker 1: up a bank that would accept deposits from unmarried women 134 00:08:13,600 --> 00:08:17,200 Speaker 1: and them alone. And honestly, if How had the means, 135 00:08:17,840 --> 00:08:20,200 Speaker 1: she might have been able to have a successful business 136 00:08:20,240 --> 00:08:23,160 Speaker 1: without the need for trickery. But How was making an 137 00:08:23,160 --> 00:08:27,560 Speaker 1: outlandish promise to her clients. She claimed that deposits would 138 00:08:27,560 --> 00:08:31,480 Speaker 1: see an eight percent interest rate, meaning that depositing money 139 00:08:31,480 --> 00:08:33,960 Speaker 1: with Hol would see an eight percent return on that 140 00:08:34,040 --> 00:08:36,760 Speaker 1: money over time. And she said that if you were 141 00:08:36,760 --> 00:08:39,760 Speaker 1: to deposit one hundred dollars in her bank, by years end, 142 00:08:40,040 --> 00:08:43,640 Speaker 1: you would have an additional ninety six dollars earned through interest, 143 00:08:44,040 --> 00:08:46,800 Speaker 1: and she promised that early investors would get the first 144 00:08:46,840 --> 00:08:50,800 Speaker 1: three months of that interest paid in advance. Now that 145 00:08:50,920 --> 00:08:54,960 Speaker 1: interest rate was significantly higher than what banks in the 146 00:08:55,040 --> 00:08:57,600 Speaker 1: general industry were able to offer, and when pressed on 147 00:08:57,760 --> 00:09:00,840 Speaker 1: how she could offer such high India rates to her 148 00:09:00,880 --> 00:09:04,880 Speaker 1: client tell she claimed that her bank had the financial 149 00:09:04,920 --> 00:09:08,040 Speaker 1: backing of Quakers who were supporting it as a charity 150 00:09:08,160 --> 00:09:11,839 Speaker 1: for women. And her spiel worked, and she advertised all 151 00:09:11,920 --> 00:09:15,640 Speaker 1: around the Northeast, gathering clients all along the way, and 152 00:09:15,679 --> 00:09:18,400 Speaker 1: a lot of the women, when they received their advance 153 00:09:18,480 --> 00:09:21,960 Speaker 1: would immediately put that money into their account with How 154 00:09:22,120 --> 00:09:25,800 Speaker 1: in order to reinvest. Historians estimate that she managed to 155 00:09:25,800 --> 00:09:29,000 Speaker 1: get between two hundred and fifty thousand, five hundred thousand 156 00:09:29,040 --> 00:09:33,200 Speaker 1: bucks in eighteen seventy nine that would be worth millions 157 00:09:33,240 --> 00:09:38,040 Speaker 1: of dollars in today's money. Eventually investigators uncovered what was 158 00:09:38,080 --> 00:09:40,240 Speaker 1: really going on, but it was pretty tricky to do 159 00:09:40,800 --> 00:09:44,120 Speaker 1: because How was strict on her policy of only serving 160 00:09:44,280 --> 00:09:48,840 Speaker 1: unmarried women, which cloaked her from most investigations. As this 161 00:09:49,160 --> 00:09:53,880 Speaker 1: was a male dominated world. Reporters were nearly always men, 162 00:09:54,080 --> 00:09:58,080 Speaker 1: and they weren't allowed inside Howe's establishments. How claimed this 163 00:09:58,280 --> 00:10:01,920 Speaker 1: was to protect her customers, these delicate, unmarried women which 164 00:10:02,160 --> 00:10:07,960 Speaker 1: society perpetually viewed as being helpless and just a potential victim, 165 00:10:08,320 --> 00:10:12,240 Speaker 1: perpetually a potential victim. And that really showed how clever 166 00:10:12,360 --> 00:10:15,880 Speaker 1: how was. She had identified a target population ripe for 167 00:10:16,000 --> 00:10:18,920 Speaker 1: exploitation and at the same time figured out how to 168 00:10:18,960 --> 00:10:23,200 Speaker 1: exclude people determined to investigate her. But here's what was 169 00:10:23,240 --> 00:10:25,880 Speaker 1: really going on. How would bring in a round of 170 00:10:25,920 --> 00:10:29,079 Speaker 1: investors who would give her money to deposit into accounts. 171 00:10:29,520 --> 00:10:32,239 Speaker 1: She then would seek out a second round of investors, 172 00:10:32,720 --> 00:10:35,640 Speaker 1: and using money from that second round, she would pay 173 00:10:35,640 --> 00:10:39,160 Speaker 1: out the advanced interest to her first round of investors. 174 00:10:39,679 --> 00:10:42,240 Speaker 1: Then she would seek out a third round and use 175 00:10:42,280 --> 00:10:44,840 Speaker 1: that money to help pay out the second round, and 176 00:10:44,920 --> 00:10:48,320 Speaker 1: so on. The scheme required how to constantly seek out 177 00:10:48,320 --> 00:10:52,199 Speaker 1: more investors to pay out dividends to her earlier investors, 178 00:10:52,520 --> 00:10:55,560 Speaker 1: and meanwhile the clock was ticking. She was helped out 179 00:10:55,600 --> 00:10:58,600 Speaker 1: considerably by the fact that many women would reinvest their 180 00:10:58,600 --> 00:11:01,720 Speaker 1: money into the scheme. They were doing so because to 181 00:11:01,800 --> 00:11:04,040 Speaker 1: them it seemed as though they were getting an incredible 182 00:11:04,080 --> 00:11:07,320 Speaker 1: interest rate, so more money in the account would mean 183 00:11:07,440 --> 00:11:10,840 Speaker 1: more money in interest down the road, their money would 184 00:11:10,880 --> 00:11:14,160 Speaker 1: be making more of itself. But in reality, this cash 185 00:11:14,240 --> 00:11:18,040 Speaker 1: was largely going to fund Howe's new lavish lifestyle, while 186 00:11:18,080 --> 00:11:20,560 Speaker 1: she kept reaching for more investors to keep the whole 187 00:11:20,600 --> 00:11:23,840 Speaker 1: show going strong. She was also helped by the fact 188 00:11:24,000 --> 00:11:26,880 Speaker 1: that the banking industry at the time was largely free 189 00:11:26,880 --> 00:11:30,400 Speaker 1: of regulation, making it something of the wild West. But 190 00:11:30,559 --> 00:11:33,679 Speaker 1: for money schemes, it was an environment that allowed for 191 00:11:33,760 --> 00:11:37,240 Speaker 1: exploitation with less risk of oversight, and so there was 192 00:11:37,480 --> 00:11:42,840 Speaker 1: opportunity for the enterprising scammer. But How's scheme eventually was 193 00:11:43,080 --> 00:11:47,920 Speaker 1: laid bare, and the press absolutely tore her to shreds. 194 00:11:48,240 --> 00:11:50,679 Speaker 1: And by tore her to shreds, I mean they didn't 195 00:11:50,840 --> 00:11:54,680 Speaker 1: just point out the fraud, but they disparaged how beyond 196 00:11:54,760 --> 00:11:58,119 Speaker 1: what the facts could support. They claimed she was illiterate, 197 00:11:58,480 --> 00:12:00,800 Speaker 1: They said she was uneducated, They said that she was 198 00:12:00,880 --> 00:12:05,000 Speaker 1: hideous to look upon. In fact, how was clearly very 199 00:12:05,080 --> 00:12:08,960 Speaker 1: well educated and witty, and the fact that earlier accounts 200 00:12:09,000 --> 00:12:12,960 Speaker 1: of how never brought into account her looks tells us 201 00:12:12,960 --> 00:12:16,680 Speaker 1: that she was probably pretty ordinary. Looking. Not only that, 202 00:12:16,800 --> 00:12:19,480 Speaker 1: but the reports on How began to fabricate an entire 203 00:12:19,720 --> 00:12:24,280 Speaker 1: history of this mysterious woman, complete with salacious and frankly 204 00:12:24,720 --> 00:12:29,720 Speaker 1: racist overtones. So we don't know much about How's history. 205 00:12:30,040 --> 00:12:34,880 Speaker 1: The history that was published was fabricated. I won't go 206 00:12:34,960 --> 00:12:36,720 Speaker 1: into the whole thing here, but to call it a 207 00:12:36,760 --> 00:12:40,959 Speaker 1: smear campaign would be going lightly. Yes, How had pulled 208 00:12:40,960 --> 00:12:43,080 Speaker 1: a fast one, but it seems to me that the 209 00:12:43,120 --> 00:12:46,440 Speaker 1: media was more upset that a woman would find such 210 00:12:46,520 --> 00:12:50,640 Speaker 1: success in what was generally considered to be a man's 211 00:12:50,800 --> 00:12:54,920 Speaker 1: domain than the fact that she did so through underhanded methods. 212 00:12:55,160 --> 00:12:59,520 Speaker 1: In other words, the misogyny was thick here, folks. How 213 00:12:59,600 --> 00:13:04,120 Speaker 1: stood trial for accepting money under false pretenses because she 214 00:13:04,200 --> 00:13:07,360 Speaker 1: had claimed that this was an extension of the Quakers. 215 00:13:08,000 --> 00:13:11,240 Speaker 1: She served three years of a prison sentence, she got out, 216 00:13:11,640 --> 00:13:14,440 Speaker 1: then she did the whole thing all over again. And 217 00:13:14,480 --> 00:13:17,320 Speaker 1: while I don't condone crime at all, part of me 218 00:13:17,400 --> 00:13:20,160 Speaker 1: admires the hell out of a woman who, when faced 219 00:13:20,160 --> 00:13:23,640 Speaker 1: with a society that actively resisted the efforts of women 220 00:13:23,679 --> 00:13:26,680 Speaker 1: to play a part beyond just being servileed to men, 221 00:13:27,600 --> 00:13:30,960 Speaker 1: she rejected that notion and decided to go her own way. 222 00:13:31,160 --> 00:13:35,320 Speaker 1: But the fact that she was targeting other women certainly 223 00:13:35,360 --> 00:13:37,480 Speaker 1: takes the romance out of it, doesn't it. I mean, 224 00:13:37,880 --> 00:13:41,040 Speaker 1: if she were targeting like fat cat businessmen who were 225 00:13:41,080 --> 00:13:43,920 Speaker 1: accustomed to putting the screws to the little guy, this 226 00:13:43,960 --> 00:13:47,040 Speaker 1: would be almost a Robin Hood like story. But with 227 00:13:47,160 --> 00:13:49,480 Speaker 1: how it was more like I rubbed from the poor 228 00:13:49,520 --> 00:13:52,800 Speaker 1: and give to myself. She was caught a second time 229 00:13:52,960 --> 00:13:55,400 Speaker 1: and decided to give up the practice, and she went 230 00:13:55,480 --> 00:13:58,280 Speaker 1: back to fortune telling. She lived out the remainder of 231 00:13:58,320 --> 00:14:01,959 Speaker 1: her days in relative obscurity and modest living, still fooling 232 00:14:01,960 --> 00:14:04,439 Speaker 1: people into believing she had some sort of mystical insight 233 00:14:04,559 --> 00:14:07,840 Speaker 1: into their fortunes. It's more like she had a pretty 234 00:14:08,280 --> 00:14:11,480 Speaker 1: regular insight into their wallets. But the heart of this 235 00:14:11,559 --> 00:14:14,000 Speaker 1: scheme is the idea that you get people to pour 236 00:14:14,120 --> 00:14:17,440 Speaker 1: money into what you're claiming is an investment, but in 237 00:14:17,480 --> 00:14:20,960 Speaker 1: fact there's nothing there, and then you use the money 238 00:14:21,000 --> 00:14:23,960 Speaker 1: from subsequent rounds of investors to pay out the dividends 239 00:14:23,960 --> 00:14:26,480 Speaker 1: to the first round while keeping most of the money 240 00:14:26,480 --> 00:14:30,040 Speaker 1: for yourself. And to convince people to back something without 241 00:14:30,040 --> 00:14:32,840 Speaker 1: thinking too much about it, you got to do a 242 00:14:32,920 --> 00:14:37,560 Speaker 1: few fairly simple things. First, you need to promise a 243 00:14:37,680 --> 00:14:41,360 Speaker 1: lucrative return on your investment, and it has to be high, 244 00:14:41,640 --> 00:14:45,240 Speaker 1: but not so high as to be completely unbelievable. But 245 00:14:45,360 --> 00:14:49,200 Speaker 1: you can definitely stretch believability quite a bit. This taps 246 00:14:49,240 --> 00:14:53,720 Speaker 1: into a particularly common human trait. It's called greed, you know, 247 00:14:53,800 --> 00:14:57,320 Speaker 1: the desire for more. Second, you just need to be 248 00:14:57,400 --> 00:15:00,600 Speaker 1: really picky about your clients. Now, this is helpful for 249 00:15:00,640 --> 00:15:03,520 Speaker 1: a couple of reasons. For one thing, by limiting who 250 00:15:03,560 --> 00:15:06,840 Speaker 1: can participate, you can reduce the chance that someone skeptical 251 00:15:06,920 --> 00:15:09,520 Speaker 1: is going to catch on to you. For another, by 252 00:15:09,560 --> 00:15:13,560 Speaker 1: restricting who can participate, you create a sense of exclusivity. 253 00:15:13,800 --> 00:15:17,680 Speaker 1: And people love to feel like they are special. They 254 00:15:17,800 --> 00:15:21,000 Speaker 1: want to be part of that exclusive club. There's this 255 00:15:21,360 --> 00:15:24,440 Speaker 1: rush of serotonin when you get the sense of acceptance 256 00:15:24,520 --> 00:15:27,440 Speaker 1: as you're brought into the fold of an otherwise exclusive group. 257 00:15:27,720 --> 00:15:31,920 Speaker 1: You made it, you merited inclusion. And then there's the 258 00:15:31,960 --> 00:15:36,080 Speaker 1: old fomo or fear of missing out. People also really 259 00:15:36,160 --> 00:15:38,920 Speaker 1: hate the idea that they were unable to pounce on 260 00:15:38,960 --> 00:15:41,680 Speaker 1: an opportunity. And I feel this one a lot. I 261 00:15:41,720 --> 00:15:44,320 Speaker 1: can't tell you how many times I felt low because 262 00:15:44,320 --> 00:15:47,600 Speaker 1: I discovered too late something that I could have participated in, 263 00:15:48,160 --> 00:15:50,640 Speaker 1: but I missed out on. So hey, if you're trying 264 00:15:50,640 --> 00:15:54,840 Speaker 1: to manipulate me playing upon my fomo works, I'm just kidding. 265 00:15:54,920 --> 00:15:59,120 Speaker 1: Don't manipulate me. I'm on to you. So using these 266 00:15:59,160 --> 00:16:03,200 Speaker 1: psychological tactics and leveraging aspects that most of us share, 267 00:16:03,600 --> 00:16:07,400 Speaker 1: hucksters can gather an entire population of marx and through 268 00:16:07,480 --> 00:16:11,400 Speaker 1: careful management and selection, the fraud fiend can keep things 269 00:16:11,440 --> 00:16:14,200 Speaker 1: going for quite a while, at least until the scheme 270 00:16:14,280 --> 00:16:16,840 Speaker 1: grows too large to support it and the whole thing 271 00:16:16,880 --> 00:16:21,000 Speaker 1: crashes down. Because ultimately that's what happens with these schemes. 272 00:16:21,040 --> 00:16:24,200 Speaker 1: They can't work perpetually. You will eventually hit a point 273 00:16:24,240 --> 00:16:27,920 Speaker 1: of saturation where it is impossible to maintain the scheme 274 00:16:28,000 --> 00:16:31,400 Speaker 1: any longer. So you might live high on the hog 275 00:16:31,720 --> 00:16:35,440 Speaker 1: for a while, but eventually you will need an exit strategy, 276 00:16:35,760 --> 00:16:39,440 Speaker 1: perhaps a literal one, if you plan to escape prosecution. 277 00:16:40,280 --> 00:16:43,320 Speaker 1: Sarah Howe clearly had at least a feel for all 278 00:16:43,360 --> 00:16:46,120 Speaker 1: of this, as her version of the scheme took advantage 279 00:16:46,320 --> 00:16:49,440 Speaker 1: of some of the very limitations that otherwise held her 280 00:16:49,520 --> 00:16:54,280 Speaker 1: and other unmarried women down. She preyed upon affinity, meaning 281 00:16:54,480 --> 00:16:57,160 Speaker 1: she was targeting a group of people who had something 282 00:16:57,160 --> 00:17:01,560 Speaker 1: in common. If you remember my episode about Earthlink, that investor, or, 283 00:17:01,600 --> 00:17:05,560 Speaker 1: that scam artist was largely targeting people who belonged to 284 00:17:05,640 --> 00:17:09,760 Speaker 1: the Church of Scientology, again, affinity. So she took the 285 00:17:09,800 --> 00:17:13,520 Speaker 1: restrictions of society and then turned those to her advantage, 286 00:17:13,560 --> 00:17:17,480 Speaker 1: at least temporarily. But again, it's not called a How's scheme, 287 00:17:17,840 --> 00:17:22,280 Speaker 1: It's called a Ponzi scheme. So who was Ponzi? Well, 288 00:17:22,320 --> 00:17:25,280 Speaker 1: despite my habit of mixing up people who share similar names, 289 00:17:25,560 --> 00:17:28,040 Speaker 1: Ponzi was not the guy in Happy Days who wore 290 00:17:28,080 --> 00:17:31,800 Speaker 1: a leather jacket, kicked jukeboxes or jump sharks. He was 291 00:17:31,840 --> 00:17:34,919 Speaker 1: a different person, and I'll talk about him more after 292 00:17:34,960 --> 00:17:46,639 Speaker 1: this quick break. So Charles Ponzi. He was born in 293 00:17:46,680 --> 00:17:49,959 Speaker 1: Italy in the early eighteen eighties, while Sarah HALLLL was 294 00:17:50,080 --> 00:17:53,000 Speaker 1: serving time in the joint for her first foray into 295 00:17:53,000 --> 00:17:58,879 Speaker 1: financial fraud yea for alliteration. He immigrated to North America 296 00:17:59,000 --> 00:18:01,919 Speaker 1: in the early nineteen hundreds. He worked a series of 297 00:18:01,920 --> 00:18:05,200 Speaker 1: odd jobs and occasionally he got in trouble for petty theft, 298 00:18:05,640 --> 00:18:08,840 Speaker 1: and his dreams were much less petty but still involved 299 00:18:08,920 --> 00:18:12,679 Speaker 1: plenty of theft. Ponzi himself was reportedly a man of 300 00:18:12,760 --> 00:18:17,720 Speaker 1: small stature, standing only five foot two. Reportedly, he knew 301 00:18:17,800 --> 00:18:20,399 Speaker 1: no English when he first traveled to the United States. 302 00:18:20,640 --> 00:18:24,120 Speaker 1: He learned it through immersion, like many other immigrants. Even 303 00:18:24,160 --> 00:18:26,760 Speaker 1: if he hadn't already shown a habit of dipping into 304 00:18:26,800 --> 00:18:30,520 Speaker 1: criminal activity beforehand, he probably would have found it really 305 00:18:30,640 --> 00:18:34,040 Speaker 1: challenging to stay on the straight and narrow because America 306 00:18:34,440 --> 00:18:37,359 Speaker 1: is in fact a country made up of immigrants. But 307 00:18:37,480 --> 00:18:40,200 Speaker 1: the America of the early twentieth century had a pretty 308 00:18:40,320 --> 00:18:44,600 Speaker 1: nasty xenophobic streak going through it. Communities of immigrants, like 309 00:18:44,800 --> 00:18:48,560 Speaker 1: those from Ireland or Ponzi's home country of Italy, were 310 00:18:48,560 --> 00:18:52,119 Speaker 1: frequently the subject of scorn and suspicion, which in turn 311 00:18:52,280 --> 00:18:56,240 Speaker 1: would become something of a self fulfilling prophecy. And when 312 00:18:56,280 --> 00:19:00,000 Speaker 1: there are very few avenues for legitimate prosperity open to you, 313 00:19:00,560 --> 00:19:04,480 Speaker 1: there isn't much choice but to explore the illegitimate pathways. 314 00:19:04,840 --> 00:19:07,919 Speaker 1: So sure, Ponzi already had a history of larceny, but 315 00:19:08,000 --> 00:19:10,640 Speaker 1: I think even if he was as innocent as can 316 00:19:10,720 --> 00:19:14,359 Speaker 1: be before he arrived in America, he would face realities 317 00:19:14,359 --> 00:19:17,680 Speaker 1: that created a lot of, let's say, incentives to dip 318 00:19:17,680 --> 00:19:21,479 Speaker 1: into crime. At any rate, that's moot speculation, because we 319 00:19:21,520 --> 00:19:25,160 Speaker 1: know he definitely dove into some illegal activities. He would 320 00:19:25,200 --> 00:19:28,879 Speaker 1: spend three years in prison after being caught forging checks, 321 00:19:29,160 --> 00:19:31,879 Speaker 1: and he spent another two years in prison after being 322 00:19:31,920 --> 00:19:35,760 Speaker 1: caught in an operation that was smuggling Italian immigrants illegally 323 00:19:35,800 --> 00:19:39,000 Speaker 1: across the Canadian border over to the US, But that 324 00:19:39,200 --> 00:19:42,920 Speaker 1: did very little to deter him from a life of crime. Rather, 325 00:19:43,000 --> 00:19:47,040 Speaker 1: his determination to pull a scheme was taking shape, largely 326 00:19:47,080 --> 00:19:50,720 Speaker 1: influenced by his experience working for a crooked bank back 327 00:19:50,760 --> 00:19:54,880 Speaker 1: in Montreal, Canada. The bank was essentially following the same 328 00:19:54,920 --> 00:19:58,720 Speaker 1: practice Sarah Howe had made famous decades earlier, paying out 329 00:19:58,720 --> 00:20:02,560 Speaker 1: extravagant dividends to customers by taking money from later rounds 330 00:20:02,560 --> 00:20:06,879 Speaker 1: of depositors. Ponzi wasn't managing that particular bank, but he 331 00:20:06,920 --> 00:20:09,960 Speaker 1: did work there and apparently picked up some tricks along 332 00:20:10,000 --> 00:20:13,320 Speaker 1: the way. In nineteen nineteen, he hit upon the heart 333 00:20:13,400 --> 00:20:17,800 Speaker 1: of his scheme, which involved something called international reply coupons, 334 00:20:17,920 --> 00:20:22,199 Speaker 1: or IRCs. And here's how they worked. Let's say you 335 00:20:22,400 --> 00:20:26,240 Speaker 1: immigrated to America from Europe and you have family back 336 00:20:26,320 --> 00:20:30,159 Speaker 1: on the continent. You're struggling to attain the American Dream. 337 00:20:30,400 --> 00:20:32,560 Speaker 1: In the meantime, your family writes to you to stay 338 00:20:32,560 --> 00:20:35,800 Speaker 1: in touch, and because you're still getting up on your feet, 339 00:20:36,080 --> 00:20:39,480 Speaker 1: your family encloses an IRC in their letter to you. 340 00:20:40,080 --> 00:20:43,800 Speaker 1: The IRC is a coupon for return postage which allows 341 00:20:43,840 --> 00:20:46,240 Speaker 1: you to write back to your family without having to 342 00:20:46,280 --> 00:20:49,879 Speaker 1: purchase your own postage, thus saving your money so you 343 00:20:49,960 --> 00:20:53,760 Speaker 1: can try and prosper. But there was a possible disparity 344 00:20:53,840 --> 00:20:57,000 Speaker 1: in the value of the IRC because the cost of 345 00:20:57,000 --> 00:21:00,479 Speaker 1: the IRC was dependent upon the country of origin. So 346 00:21:00,720 --> 00:21:03,439 Speaker 1: let's say your family's in Spain, and let's say the 347 00:21:03,480 --> 00:21:05,920 Speaker 1: cost to send a letter from Spain to the United 348 00:21:05,920 --> 00:21:10,479 Speaker 1: States is five cents, and an IRC costs the same amount. 349 00:21:10,520 --> 00:21:13,720 Speaker 1: So your family spends five cents on an IRC to 350 00:21:13,800 --> 00:21:17,000 Speaker 1: put inside the letter and then spends another five cents 351 00:21:17,280 --> 00:21:20,520 Speaker 1: to post the letter to the United States. But let's 352 00:21:20,520 --> 00:21:24,080 Speaker 1: say that in the US it costs ten cents to 353 00:21:24,160 --> 00:21:27,760 Speaker 1: send a letter back to Spain. So you take this IRC, 354 00:21:28,040 --> 00:21:31,840 Speaker 1: which remember your family paid five cents for back in Spain, 355 00:21:32,280 --> 00:21:34,440 Speaker 1: and you redeem it in the United States for postage 356 00:21:34,480 --> 00:21:37,359 Speaker 1: back to Spain. But the IRC allows you to get 357 00:21:37,440 --> 00:21:41,119 Speaker 1: ten cents worth of postage. So while the IRC cost 358 00:21:41,280 --> 00:21:43,760 Speaker 1: five cents in Spain, you can redeem it for ten 359 00:21:43,840 --> 00:21:46,520 Speaker 1: cents in the United States. And that was the heart 360 00:21:46,600 --> 00:21:50,240 Speaker 1: of Ponzi's scheme. In a way, it was an extension 361 00:21:50,280 --> 00:21:53,200 Speaker 1: of the basic idea that you should buy commodities at 362 00:21:53,200 --> 00:21:55,639 Speaker 1: a low price and sell them for a high price, 363 00:21:56,080 --> 00:21:58,440 Speaker 1: which generally means you've got to find a place where 364 00:21:58,480 --> 00:22:01,359 Speaker 1: the price of something is pretty low, usually because that 365 00:22:01,440 --> 00:22:04,960 Speaker 1: region produces a lot of whatever the commodity is so 366 00:22:05,040 --> 00:22:08,480 Speaker 1: supply is high. Then you transport those goods to a 367 00:22:08,520 --> 00:22:12,000 Speaker 1: place that has a higher demand for that commodity, and 368 00:22:12,040 --> 00:22:14,840 Speaker 1: you sell it for a profit. Now, over time, this 369 00:22:15,000 --> 00:22:18,480 Speaker 1: can lead to changes in price at both locations. The 370 00:22:18,600 --> 00:22:22,680 Speaker 1: source might start raising prices and the destination might start 371 00:22:22,800 --> 00:22:26,359 Speaker 1: decreasing demand. But for a time there's a lot of 372 00:22:26,359 --> 00:22:29,800 Speaker 1: profit to be made, and this is completely legal and legitimate. 373 00:22:30,359 --> 00:22:33,280 Speaker 1: Ponzi's pitch revolved around this idea that he would be 374 00:22:33,280 --> 00:22:36,240 Speaker 1: able to purchase IRCs for a low price in other 375 00:22:36,320 --> 00:22:40,560 Speaker 1: countries and redeem them for much higher returns elsewhere. It 376 00:22:40,760 --> 00:22:43,320 Speaker 1: wasn't that different from people who try to make money 377 00:22:43,359 --> 00:22:47,200 Speaker 1: in currency markets, relying on the exchange rates of various 378 00:22:47,240 --> 00:22:51,520 Speaker 1: currencies Ponzi might have originally been sincere in his plans, 379 00:22:51,760 --> 00:22:54,439 Speaker 1: hoping to leverage the market to make a profit. But 380 00:22:54,680 --> 00:22:57,840 Speaker 1: even if you were sincere, the plan was never going 381 00:22:57,880 --> 00:23:03,120 Speaker 1: to work at scale. Virtual value of IRCs was very low, 382 00:23:03,160 --> 00:23:05,879 Speaker 1: just a matter of a few cents each, so to 383 00:23:05,920 --> 00:23:09,000 Speaker 1: operate at a scale equivalent to the investments that Ponzi 384 00:23:09,000 --> 00:23:13,240 Speaker 1: would start accepting would require more IRCs than the market 385 00:23:13,320 --> 00:23:16,119 Speaker 1: actually had. If I give you a check for one 386 00:23:16,119 --> 00:23:18,600 Speaker 1: thousand bucks and you have promised that you're going to 387 00:23:18,680 --> 00:23:21,960 Speaker 1: give me a fifty percent return and interest within forty 388 00:23:22,000 --> 00:23:25,960 Speaker 1: five days, which was what Ponzi was promising people, and 389 00:23:26,240 --> 00:23:29,199 Speaker 1: it's all through buying up IRCs that just cost a 390 00:23:29,320 --> 00:23:31,680 Speaker 1: penny in one place and can be redeemed for five 391 00:23:31,760 --> 00:23:35,600 Speaker 1: cents somewhere else. That's going to require an awful lot 392 00:23:35,640 --> 00:23:38,679 Speaker 1: of IRCs to make up that fifty percent you're going 393 00:23:38,760 --> 00:23:40,879 Speaker 1: to owe me in forty five days. And I'm just 394 00:23:40,960 --> 00:23:44,600 Speaker 1: one investor. So this plan just could not work at scale, 395 00:23:44,880 --> 00:23:47,200 Speaker 1: and so Ponzi was going to follow in the footsteps 396 00:23:47,200 --> 00:23:50,960 Speaker 1: of how and others. The premise of the scheme was 397 00:23:51,080 --> 00:23:54,520 Speaker 1: a bit complicated, this whole idea of IRCs, but that 398 00:23:54,640 --> 00:23:58,560 Speaker 1: worked to Ponzi's benefit. It helps if the flim flam 399 00:23:58,640 --> 00:24:00,919 Speaker 1: you're selling to Marx is a little bit on the 400 00:24:00,960 --> 00:24:04,280 Speaker 1: complex side, because it makes it harder for people to 401 00:24:04,400 --> 00:24:07,840 Speaker 1: suss out that it's a scam. If what you're selling 402 00:24:07,920 --> 00:24:11,560 Speaker 1: is complicated enough that the average person can't really follow it, 403 00:24:11,960 --> 00:24:14,960 Speaker 1: but it sounds legit enough to fool them, you've got 404 00:24:15,000 --> 00:24:18,080 Speaker 1: yourself a potential gold mine. You just need to sound 405 00:24:18,359 --> 00:24:20,960 Speaker 1: like you understand how it all works, even if it 406 00:24:21,040 --> 00:24:25,200 Speaker 1: doesn't work. It puts the confidence in con man. Sound 407 00:24:25,200 --> 00:24:28,280 Speaker 1: assured enough, and folks will tend to think you really 408 00:24:28,320 --> 00:24:33,040 Speaker 1: got it together. Ponzi was promising a pretty incredible return, 409 00:24:33,119 --> 00:24:36,200 Speaker 1: that fifty percent return on investment within the first forty 410 00:24:36,240 --> 00:24:41,000 Speaker 1: five days, with future payoffs making everyone truckloads of cash. 411 00:24:41,240 --> 00:24:44,399 Speaker 1: He began the old practice of robbing Peter to pay Paul, 412 00:24:44,840 --> 00:24:48,040 Speaker 1: with that old gimmick of taking newcomers money and paying 413 00:24:48,080 --> 00:24:51,439 Speaker 1: out dividends to early investors and pocketing the rest, and 414 00:24:51,480 --> 00:24:54,720 Speaker 1: all of those early investors reinvesting that money and then 415 00:24:54,800 --> 00:24:58,879 Speaker 1: just rents and repeat, same scam, just different trappings. He 416 00:24:58,920 --> 00:25:02,680 Speaker 1: attracted a lot of cust Some were poor Italian immigrants, 417 00:25:02,840 --> 00:25:05,200 Speaker 1: much as Ponzi had been when he came to America 418 00:25:05,240 --> 00:25:08,760 Speaker 1: in nineteen oh three, so again we have that affinity 419 00:25:08,960 --> 00:25:12,440 Speaker 1: going on there. Others were people of high social stature 420 00:25:12,680 --> 00:25:16,199 Speaker 1: and those with respectable occupations, And over the course of 421 00:25:16,240 --> 00:25:20,720 Speaker 1: eight months, Ponzi was rolling in dough, bringing in an 422 00:25:20,840 --> 00:25:25,960 Speaker 1: estimated fifteen million dollars in nineteen twenty. If we adjust 423 00:25:26,000 --> 00:25:31,320 Speaker 1: for inflation, that's nearly two hundred million dollars in today's money. 424 00:25:31,880 --> 00:25:34,280 Speaker 1: To say that Ponzi lived in luxury is kind of 425 00:25:34,359 --> 00:25:37,199 Speaker 1: under selling it a bit. He bought a very expensive 426 00:25:37,240 --> 00:25:41,520 Speaker 1: mansion in Boston, he bought a luxury automobile. He really 427 00:25:41,720 --> 00:25:45,720 Speaker 1: was living the dream. He also attempted to invest in 428 00:25:46,160 --> 00:25:49,159 Speaker 1: legitimate businesses in an effort to try and shuffle some 429 00:25:49,240 --> 00:25:53,320 Speaker 1: money around to pay off investors of his primary scheme, 430 00:25:53,920 --> 00:25:56,719 Speaker 1: as it was becoming increasingly difficult to meet the interest 431 00:25:56,760 --> 00:26:01,000 Speaker 1: payments of The various rounds of investors helped that. Again, 432 00:26:01,080 --> 00:26:03,440 Speaker 1: a lot of those investors would turn around and reinvest 433 00:26:03,480 --> 00:26:06,119 Speaker 1: their interest payments in the scheme, but it still meant 434 00:26:06,280 --> 00:26:08,399 Speaker 1: he had to come up with those dividend payments on 435 00:26:08,440 --> 00:26:11,520 Speaker 1: a regular schedule, and it was getting more challenging to 436 00:26:11,600 --> 00:26:14,640 Speaker 1: do that. Ponzi was also the subject of a lot 437 00:26:14,640 --> 00:26:18,440 Speaker 1: of publicity. This was actually something that Ponzi sought out, because, 438 00:26:18,440 --> 00:26:20,840 Speaker 1: after all, he needed more people to be aware of 439 00:26:20,880 --> 00:26:23,240 Speaker 1: him in order to get more investors to keep the 440 00:26:23,280 --> 00:26:26,399 Speaker 1: whole thing going. But it also meant that more people 441 00:26:26,400 --> 00:26:29,720 Speaker 1: were paying closer attention to his activities, and at least 442 00:26:29,760 --> 00:26:32,240 Speaker 1: a few of those people knew that if something seems 443 00:26:32,280 --> 00:26:35,439 Speaker 1: too good to be true, it probably is, and so 444 00:26:35,600 --> 00:26:39,679 Speaker 1: the net was gradually closing around Ponzi. In July of 445 00:26:39,760 --> 00:26:43,159 Speaker 1: nineteen twenty, the Boston Post published an article revealing that 446 00:26:43,200 --> 00:26:46,880 Speaker 1: the math just didn't add up to support Ponzi's story. 447 00:26:47,440 --> 00:26:50,800 Speaker 1: The reporter pointed out there just weren't enough IRCs in 448 00:26:50,840 --> 00:26:54,760 Speaker 1: circulation to support the amount of money that Ponzi was handling, 449 00:26:55,200 --> 00:26:58,399 Speaker 1: and that the very foundation for his investment scheme was 450 00:26:58,760 --> 00:27:01,960 Speaker 1: literally impossib Now, that should have been the end of 451 00:27:02,000 --> 00:27:04,920 Speaker 1: it all, but Ponzi spun a story about how he 452 00:27:04,960 --> 00:27:08,320 Speaker 1: had actually long since switched over to a different investment 453 00:27:08,400 --> 00:27:12,480 Speaker 1: strategy that didn't involve IRCs at all, but he never 454 00:27:12,520 --> 00:27:15,560 Speaker 1: revealed that trade secret in order to prevent others from 455 00:27:15,640 --> 00:27:19,800 Speaker 1: stealing his business. In other words, he was saying, oh yeah, no, 456 00:27:19,920 --> 00:27:22,919 Speaker 1: if I were just using IRCs, I'd totally be a 457 00:27:22,960 --> 00:27:26,600 Speaker 1: liar and a thief. But I'm using this other method 458 00:27:27,040 --> 00:27:30,120 Speaker 1: only I can't tell you what it is, but trust 459 00:27:30,240 --> 00:27:34,160 Speaker 1: me to keep things moving. Ponzi even paid out about 460 00:27:34,160 --> 00:27:38,040 Speaker 1: two million dollars worth of dividends to investors, which actually 461 00:27:38,119 --> 00:27:41,399 Speaker 1: helped prevent a run on his company. In fact, a 462 00:27:41,400 --> 00:27:44,720 Speaker 1: lot of those investors, once they were reassured by this payment, 463 00:27:44,960 --> 00:27:49,560 Speaker 1: chose again to reinvest in Ponzi's scheme, and so he 464 00:27:49,720 --> 00:27:52,080 Speaker 1: was able to keep things afloat a little bit longer. 465 00:27:52,600 --> 00:27:56,280 Speaker 1: But the net cinched tightly because of a decision that 466 00:27:56,320 --> 00:28:00,560 Speaker 1: Ponzi himself made. He hired on a public relation manager 467 00:28:00,800 --> 00:28:04,200 Speaker 1: who happened to be honest, and this manager suspected that 468 00:28:04,240 --> 00:28:07,520 Speaker 1: Ponzi's methodology was in fact fraud, and he went to 469 00:28:07,560 --> 00:28:11,359 Speaker 1: the press and the authorities. Ponzi was arrested on charges 470 00:28:11,359 --> 00:28:14,679 Speaker 1: of fraud. He was tried and convicted and sentenced to 471 00:28:14,720 --> 00:28:17,000 Speaker 1: go back to prison for three and a half years 472 00:28:17,400 --> 00:28:20,120 Speaker 1: before he was let out on parole. He was then 473 00:28:20,359 --> 00:28:23,680 Speaker 1: arrested again. He jumped bail, headed to Florida and tried 474 00:28:23,680 --> 00:28:26,119 Speaker 1: to run a real estate scam, but there he was 475 00:28:26,240 --> 00:28:30,040 Speaker 1: arrested again, sent back to Massachusetts and sentenced to another 476 00:28:30,200 --> 00:28:33,800 Speaker 1: seven years in jail, and then subsequently the United States 477 00:28:33,800 --> 00:28:39,440 Speaker 1: government deported him to Italy and said, there you handle 478 00:28:39,480 --> 00:28:42,840 Speaker 1: this guy. The investors back in the United States and 479 00:28:43,160 --> 00:28:46,320 Speaker 1: Canada lost almost all of their money. Some of them 480 00:28:46,360 --> 00:28:50,280 Speaker 1: saw a return of around thirty percent of their actual investments, 481 00:28:51,000 --> 00:28:54,360 Speaker 1: but no matter what, it was a loss. As for Ponzi, well, 482 00:28:54,680 --> 00:28:58,040 Speaker 1: he hooked up with Mussolini back in Italy and joined 483 00:28:58,040 --> 00:29:02,280 Speaker 1: the Fascist movement. He was briefly an official in Mussolini's 484 00:29:02,280 --> 00:29:06,320 Speaker 1: treasury department. However, it became clear that Ponzi's business acumen 485 00:29:06,480 --> 00:29:10,040 Speaker 1: wasn't all there. He knew how to run a convincing scam, 486 00:29:10,320 --> 00:29:15,560 Speaker 1: but not how to handle real financial matters. So Mussolini 487 00:29:15,600 --> 00:29:18,760 Speaker 1: decided to send Ponzi off to Rio di Genio in Brazil, 488 00:29:18,880 --> 00:29:22,520 Speaker 1: where he would manage an airline called Altalia until all 489 00:29:22,640 --> 00:29:25,640 Speaker 1: Talia was forced to close due to World War Two. 490 00:29:26,200 --> 00:29:30,520 Speaker 1: Ponzi ultimately would live in poverty in Brazil and died 491 00:29:30,640 --> 00:29:35,280 Speaker 1: in a charity ward in nineteen forty nine. The publicity 492 00:29:35,600 --> 00:29:38,840 Speaker 1: and the over enthusiastic support of Ponzi before the scheme 493 00:29:38,960 --> 00:29:42,320 Speaker 1: came tumbling down are likely what led people to refer 494 00:29:42,400 --> 00:29:46,440 Speaker 1: to this practice as a Ponzi scheme. But as we've learned, 495 00:29:46,600 --> 00:29:48,920 Speaker 1: Ponzi was not the first to do it, nor was 496 00:29:49,000 --> 00:29:51,520 Speaker 1: how and honestly, the whole idea of robbing Peter to 497 00:29:51,520 --> 00:29:53,800 Speaker 1: pay Paul as a very old one, and of course 498 00:29:54,240 --> 00:29:56,280 Speaker 1: he wouldn't be the last person to do it either. 499 00:29:56,600 --> 00:29:58,480 Speaker 1: When we come back, i'll talk about one of the 500 00:29:58,480 --> 00:30:01,320 Speaker 1: most recent incarnations of the p Ponzi scheme and how 501 00:30:01,320 --> 00:30:05,200 Speaker 1: it ties into the complicated world of cryptocurrency. But first 502 00:30:05,640 --> 00:30:19,320 Speaker 1: let's take another quick break. So cryptocurrency. After even just 503 00:30:19,440 --> 00:30:22,880 Speaker 1: a brief overview of this topic, you will see how 504 00:30:22,960 --> 00:30:26,720 Speaker 1: it becomes an ideal focus for a Ponzi scheme. The 505 00:30:26,760 --> 00:30:30,440 Speaker 1: way it works is pretty hard to explain to the uninitiated, 506 00:30:30,680 --> 00:30:33,600 Speaker 1: which frequently can include people who happen to have a 507 00:30:33,640 --> 00:30:37,000 Speaker 1: lot of money but they want to have more of 508 00:30:37,040 --> 00:30:41,440 Speaker 1: it investors in other words, and moreover, one of cryptocurrency's 509 00:30:41,440 --> 00:30:44,520 Speaker 1: most important features is that you're usually talking about an 510 00:30:44,680 --> 00:30:50,320 Speaker 1: unregulated currency that is independent of any government or financial 511 00:30:50,360 --> 00:30:54,080 Speaker 1: institution backing, which means that, like the banking industry of 512 00:30:54,120 --> 00:30:58,320 Speaker 1: the late nineteenth century, it's prime real estate for Scam City. 513 00:30:58,800 --> 00:31:02,720 Speaker 1: But we should really start with defining cryptocurrency. A lot 514 00:31:02,800 --> 00:31:06,360 Speaker 1: of folks think cryptocurrency and bitcoin are synonymous, but that 515 00:31:06,680 --> 00:31:11,400 Speaker 1: is an oversimplification. Bitcoin is a type of cryptocurrency, but 516 00:31:11,520 --> 00:31:15,880 Speaker 1: not all cryptocurrencies are Bitcoin, just like all dogs are mammals, 517 00:31:16,000 --> 00:31:19,560 Speaker 1: but not all mammals are dogs. Bitcoin's identity is tied 518 00:31:19,600 --> 00:31:22,520 Speaker 1: to the concept of blockchain, which in itself can be 519 00:31:22,600 --> 00:31:26,920 Speaker 1: used for other things besides cryptocurrency. But what the heck 520 00:31:27,360 --> 00:31:32,920 Speaker 1: is cryptocurrency? Oxford defines the term as quote a digital 521 00:31:33,000 --> 00:31:36,840 Speaker 1: currency in which transactions are verified and records maintained by 522 00:31:36,840 --> 00:31:41,680 Speaker 1: a decentralized system using cryptography rather than a centralized authority 523 00:31:41,920 --> 00:31:44,640 Speaker 1: end quote. So, in other words, instead of having a 524 00:31:44,680 --> 00:31:48,960 Speaker 1: government or a financial institution overseeing and verifying transactions and 525 00:31:49,080 --> 00:31:52,880 Speaker 1: keeping a ledger of everything, there is some computational system 526 00:31:52,880 --> 00:31:55,480 Speaker 1: in place to perform this task, and it is dependent 527 00:31:55,600 --> 00:32:01,520 Speaker 1: upon cryptography. Okay, So one is cryptoc will simply put 528 00:32:01,560 --> 00:32:06,000 Speaker 1: its encoding. It's taking information and using some form of 529 00:32:06,120 --> 00:32:11,080 Speaker 1: reversible transformation on that information. In the transformed state, it 530 00:32:11,160 --> 00:32:16,040 Speaker 1: is difficult or ideally impossible to determine what the encoded 531 00:32:16,080 --> 00:32:21,320 Speaker 1: information actually is only by performing the reversible transformation. Can 532 00:32:21,360 --> 00:32:25,160 Speaker 1: you get at the original form of that information? With Bitcoin, 533 00:32:25,480 --> 00:32:30,120 Speaker 1: the system has transactions that are awaiting verification, and as 534 00:32:30,160 --> 00:32:34,479 Speaker 1: part of the verification process to update the system wide 535 00:32:34,720 --> 00:32:38,280 Speaker 1: ledger that keeps track of where bitcoins have been spent 536 00:32:39,040 --> 00:32:42,200 Speaker 1: and how they have changed hands. Obviously that's important, Otherwise 537 00:32:42,640 --> 00:32:46,160 Speaker 1: you could, in theory, spend the same bitcoin more than 538 00:32:46,200 --> 00:32:49,640 Speaker 1: once and then the whole system cracks. Well, the system 539 00:32:49,720 --> 00:32:53,400 Speaker 1: will generate an equation that is missing a random number 540 00:32:53,640 --> 00:32:57,040 Speaker 1: to solve it, and computers connected to the system try 541 00:32:57,080 --> 00:33:00,440 Speaker 1: to essentially guess that random number, and when a computer 542 00:33:00,600 --> 00:33:04,520 Speaker 1: does this, the equation is solved. The winning computer selects 543 00:33:04,560 --> 00:33:07,400 Speaker 1: which transactions are going to make up the next block 544 00:33:07,440 --> 00:33:11,440 Speaker 1: in the blockchain. Those transactions are verified, and the block 545 00:33:11,480 --> 00:33:15,880 Speaker 1: of verified transactions joins the growing chain of transactions that 546 00:33:15,960 --> 00:33:18,400 Speaker 1: trace all the way back to the very beginning of bitcoin. 547 00:33:18,800 --> 00:33:22,040 Speaker 1: Oh and every machine on that system receives an update 548 00:33:22,280 --> 00:33:25,719 Speaker 1: on this chain, so that this distributed ledger is up 549 00:33:25,720 --> 00:33:28,560 Speaker 1: to date across the entire system, and that's how you 550 00:33:28,680 --> 00:33:32,240 Speaker 1: know that all of these transactions are legit. In return, 551 00:33:32,640 --> 00:33:36,240 Speaker 1: the computer that succeeded in guessing the number is awarded 552 00:33:36,280 --> 00:33:40,760 Speaker 1: a certain number of bitcoins. The quantity of bitcoins is fixed, 553 00:33:40,960 --> 00:33:45,040 Speaker 1: meaning that eventually every bitcoin that will ever exist will 554 00:33:45,040 --> 00:33:47,760 Speaker 1: be in circulation and no more will be made. At 555 00:33:47,760 --> 00:33:51,960 Speaker 1: the time I'm recording this, the value of bitcoins is astronomical, 556 00:33:52,040 --> 00:33:55,920 Speaker 1: with one bitcoin equal to nearly thirty seven thousand dollars. 557 00:33:56,000 --> 00:33:58,120 Speaker 1: It might be even more by the time you hear this. 558 00:33:58,520 --> 00:34:02,040 Speaker 1: And if your computer, or more accurately, your network of 559 00:34:02,160 --> 00:34:05,479 Speaker 1: very powerful computers, is the one that solves the equation, 560 00:34:06,120 --> 00:34:09,160 Speaker 1: you would get six point two to five bitcoins right now, 561 00:34:09,480 --> 00:34:11,759 Speaker 1: which means you rake in around two hundred and thirty 562 00:34:11,840 --> 00:34:16,480 Speaker 1: thousand dollars per block solved. This explains why there's such 563 00:34:16,520 --> 00:34:19,760 Speaker 1: a rush to scoop up stuff like powerful graphics processing 564 00:34:19,840 --> 00:34:23,719 Speaker 1: units or GPUs, which are better suited to solving these 565 00:34:23,840 --> 00:34:26,880 Speaker 1: kinds of problems. Oh and to compensate for that, the 566 00:34:26,920 --> 00:34:30,840 Speaker 1: system can actually adjust the difficulty of the next problem 567 00:34:30,880 --> 00:34:34,000 Speaker 1: that spits out when it's time to verify a new block. 568 00:34:34,600 --> 00:34:37,600 Speaker 1: The goal is for the time between the problem being 569 00:34:37,640 --> 00:34:40,920 Speaker 1: broadcast to the system and the solution coming back is 570 00:34:41,200 --> 00:34:44,360 Speaker 1: around ten minutes, So if a computer on the system 571 00:34:44,400 --> 00:34:46,800 Speaker 1: is solving the problem in less time than ten minutes, 572 00:34:47,320 --> 00:34:52,359 Speaker 1: the system will essentially make the future problems more challenging. Now, 573 00:34:52,440 --> 00:34:54,920 Speaker 1: if that sounds a little weird to you, that's a 574 00:34:54,960 --> 00:34:59,920 Speaker 1: pretty common reaction, and it's what scammers bank on figuratively speaking, 575 00:35:00,320 --> 00:35:04,440 Speaker 1: because with that unusual approach comes a lack of understanding 576 00:35:04,480 --> 00:35:08,959 Speaker 1: and familiarity. But because of the success of Bitcoin, there's 577 00:35:09,000 --> 00:35:11,919 Speaker 1: a general sense that cryptocurrency is a way to make 578 00:35:12,280 --> 00:35:17,480 Speaker 1: stupid amounts of money super fast, and it's deregulated. You 579 00:35:17,520 --> 00:35:20,440 Speaker 1: couldn't ask for a better setup. As a confidence artist. 580 00:35:20,760 --> 00:35:23,160 Speaker 1: You just need to demonstrate that you know what you're 581 00:35:23,160 --> 00:35:26,160 Speaker 1: talking about, or at least you appear to, and you 582 00:35:26,200 --> 00:35:29,240 Speaker 1: can lure folks in with the promise of untold riches 583 00:35:29,600 --> 00:35:32,839 Speaker 1: and you've got success stories like Bitcoin to point at 584 00:35:32,920 --> 00:35:36,120 Speaker 1: as your evidence. Now, according to a report titled the 585 00:35:36,200 --> 00:35:40,080 Speaker 1: twenty twenty State of Crypto Crime published by an analytics 586 00:35:40,120 --> 00:35:45,080 Speaker 1: firm called Chainalysis, in twenty nineteen, the cryptocurrency community saw 587 00:35:45,239 --> 00:35:49,480 Speaker 1: four point three billion dollars worth of digital money go 588 00:35:49,600 --> 00:35:53,640 Speaker 1: to scammers. Now, that includes all types of scams, including 589 00:35:53,680 --> 00:35:57,560 Speaker 1: selling customers fake tokens for digital currency, but ninety two 590 00:35:57,640 --> 00:36:01,840 Speaker 1: percent of all the cash fleece from victims followed the 591 00:36:02,000 --> 00:36:06,080 Speaker 1: old ponzi scheme, and yeah, the actual scheme is the 592 00:36:06,120 --> 00:36:08,880 Speaker 1: same as it always has been. There is a promise 593 00:36:09,040 --> 00:36:11,760 Speaker 1: of a means of generating a high and rapid return 594 00:36:11,800 --> 00:36:15,280 Speaker 1: on investment, and the meteoric rise in value of bitcoin 595 00:36:15,360 --> 00:36:19,400 Speaker 1: in particular makes this seem plausible. I mean, when bitcoin's 596 00:36:19,440 --> 00:36:22,799 Speaker 1: first emerged, they were peaking in value at about eight 597 00:36:22,960 --> 00:36:27,560 Speaker 1: cents per bitcoin, eight cents in twenty ten, and a 598 00:36:27,600 --> 00:36:32,280 Speaker 1: decade later there worth nearly forty thousand dollars for one bitcoin. 599 00:36:32,800 --> 00:36:36,759 Speaker 1: That is a fact. It is also a very difficult 600 00:36:36,760 --> 00:36:41,120 Speaker 1: to believe. Fact. It does feel unbelievable, but it's true. 601 00:36:41,280 --> 00:36:44,680 Speaker 1: And when you've got a truth that seems impossible, it's 602 00:36:44,719 --> 00:36:47,759 Speaker 1: pretty easy to sell people on the idea of equally 603 00:36:47,880 --> 00:36:52,000 Speaker 1: impossible things. So convinced that the scammers are going to 604 00:36:52,120 --> 00:36:56,440 Speaker 1: use the weird, seemingly magical world of cryptocurrency to make 605 00:36:56,480 --> 00:37:01,960 Speaker 1: investments balloon exponentially, people poured mind into these schemes, and 606 00:37:02,000 --> 00:37:05,200 Speaker 1: the scammers, like those in years past, take the money 607 00:37:05,200 --> 00:37:07,880 Speaker 1: of new investors, use a little bit of it to 608 00:37:07,920 --> 00:37:10,920 Speaker 1: pay out dividends to earlier investors, and then hold on 609 00:37:10,960 --> 00:37:13,480 Speaker 1: to the rest. And like schemes of the past. They 610 00:37:13,600 --> 00:37:18,160 Speaker 1: frequently will see those early investors reinvest the quote unquote earnings, 611 00:37:18,680 --> 00:37:21,799 Speaker 1: which aren't really earnings. You're not earning more money, you're 612 00:37:21,880 --> 00:37:25,200 Speaker 1: just bilking more investors. So the scammers end up getting 613 00:37:25,239 --> 00:37:27,719 Speaker 1: to keep way more money than they ever pay out, 614 00:37:27,880 --> 00:37:29,959 Speaker 1: and they keep it going for as long as they can. 615 00:37:30,520 --> 00:37:34,080 Speaker 1: But like every other Ponzi scheme, this strategy only works 616 00:37:34,080 --> 00:37:36,040 Speaker 1: for as long as you're able to get new people 617 00:37:36,080 --> 00:37:39,360 Speaker 1: to sign on, and you often just need to seem 618 00:37:39,480 --> 00:37:42,120 Speaker 1: semi legit and appeal to people's greed in order to 619 00:37:42,160 --> 00:37:47,319 Speaker 1: get bites. Take the scam plus Token for example. This 620 00:37:47,480 --> 00:37:50,879 Speaker 1: was a scam out of China that primarily targeted investors 621 00:37:51,280 --> 00:37:55,040 Speaker 1: or suckers if you prefer in China, Korea, and Japan. 622 00:37:55,680 --> 00:37:58,040 Speaker 1: The pitch was that plus token was a type of 623 00:37:58,080 --> 00:38:01,840 Speaker 1: digital wallet, and the scammers claim that if users purchased 624 00:38:01,880 --> 00:38:05,759 Speaker 1: a plus token with digital currencies like bitcoin or ethereum, 625 00:38:06,200 --> 00:38:10,040 Speaker 1: they would see huge returns on that investment. The scammers 626 00:38:10,040 --> 00:38:13,840 Speaker 1: went big with their approach, taking out ads in supermarkets 627 00:38:13,880 --> 00:38:18,520 Speaker 1: and using the messaging service we chat to reach potential targets. Reportedly, 628 00:38:18,920 --> 00:38:22,520 Speaker 1: more than three million people fell victim to this scam 629 00:38:22,560 --> 00:38:25,920 Speaker 1: signing over their digital currency to these hucksters who were 630 00:38:25,960 --> 00:38:30,080 Speaker 1: really just selling fake tokens. And like all Ponzi schemes, 631 00:38:30,120 --> 00:38:32,960 Speaker 1: the scammers used money from later investors to pay out 632 00:38:33,400 --> 00:38:35,960 Speaker 1: a dividend to the earlier ones, And because of the 633 00:38:36,040 --> 00:38:39,600 Speaker 1: nature of cryptocurrency, it's pretty darn hard to track down 634 00:38:39,680 --> 00:38:43,440 Speaker 1: all the perpetrators and punish them. That plus scam was 635 00:38:43,520 --> 00:38:47,600 Speaker 1: reportedly a monumental success, with the scammers stealing what amounted 636 00:38:47,640 --> 00:38:52,440 Speaker 1: to around three billion dollars that's billion with a B. 637 00:38:53,480 --> 00:38:56,880 Speaker 1: The scam ran its course through July of twenty nineteen, 638 00:38:57,040 --> 00:38:59,359 Speaker 1: when the scammers tried to high tail it out of there, 639 00:39:00,040 --> 00:39:03,040 Speaker 1: and Chinese authorities claimed to have arrested one hundred and 640 00:39:03,280 --> 00:39:07,040 Speaker 1: nine people connected with the scam, including twenty seven believed 641 00:39:07,040 --> 00:39:10,440 Speaker 1: to be chiefly responsible for it. And while investors lost 642 00:39:10,480 --> 00:39:13,680 Speaker 1: a huge amount of money, it's not exactly easy to 643 00:39:13,680 --> 00:39:17,040 Speaker 1: get cryptocurrency out of the system and converted into other 644 00:39:17,120 --> 00:39:20,799 Speaker 1: forms of currency. In other words, it's hard to launder 645 00:39:20,880 --> 00:39:24,400 Speaker 1: and get hold of that cash, especially in those amounts. 646 00:39:24,600 --> 00:39:28,600 Speaker 1: It requires tons of money laundering, which in turn can 647 00:39:28,640 --> 00:39:31,719 Speaker 1: sometimes create enough of a digital noise for authorities to 648 00:39:31,760 --> 00:39:34,160 Speaker 1: take notice and then try and track down who is 649 00:39:34,200 --> 00:39:38,719 Speaker 1: behind the activity. The plus token shenanigans were so disruptive 650 00:39:39,000 --> 00:39:42,560 Speaker 1: that they affected the exchange rate of bitcoins, the value 651 00:39:42,640 --> 00:39:45,640 Speaker 1: of bitcoins, and for a while the cryptocurrency's value against 652 00:39:45,640 --> 00:39:48,800 Speaker 1: the dollar took a big hit. Now it has since 653 00:39:49,120 --> 00:39:53,000 Speaker 1: fully recovered and then some. There are other examples of 654 00:39:53,080 --> 00:39:57,040 Speaker 1: cryptocurrency ponzi schemes. In the United States, the Department of 655 00:39:57,160 --> 00:40:01,160 Speaker 1: Justice filed charges against five defendants alleged that they had 656 00:40:01,200 --> 00:40:05,280 Speaker 1: defrauded investors out of seven hundred twenty two million dollars 657 00:40:05,360 --> 00:40:09,719 Speaker 1: using a similar ponzi scheme called the bitclub network. The 658 00:40:09,760 --> 00:40:13,319 Speaker 1: bitclub approach involved pitching investors the chance to put their 659 00:40:13,360 --> 00:40:17,680 Speaker 1: money into cryptocurrency mining pools. So from what I can gather, 660 00:40:18,040 --> 00:40:20,600 Speaker 1: they were claiming that the investment money would go toward 661 00:40:20,920 --> 00:40:24,480 Speaker 1: building out computer systems that would solve those equations I 662 00:40:24,520 --> 00:40:27,279 Speaker 1: mentioned earlier, and do so at a rate fast enough 663 00:40:27,280 --> 00:40:31,719 Speaker 1: to be a profitable investment, So the bitcoin's mind would 664 00:40:31,840 --> 00:40:35,440 Speaker 1: end up generating value that could be distributed to the investors. 665 00:40:36,320 --> 00:40:39,280 Speaker 1: When you're talking about making a couple hundred thousand dollars 666 00:40:39,480 --> 00:40:43,200 Speaker 1: potentially every ten minutes or so, assuming you've actually got 667 00:40:43,239 --> 00:40:47,160 Speaker 1: the computer power that can outclass all the other computers 668 00:40:47,200 --> 00:40:49,800 Speaker 1: on the system trying to do the same thing. Well, 669 00:40:49,960 --> 00:40:53,560 Speaker 1: it sounds like a no brainer, but an investigation show that, 670 00:40:53,800 --> 00:40:57,160 Speaker 1: counter to what the bitclub network claimed, the payouts for 671 00:40:57,239 --> 00:41:00,600 Speaker 1: investments had little or nothing to do with the performance 672 00:41:00,640 --> 00:41:04,760 Speaker 1: of the cryptocurrency mining pool. The scammers were using investment 673 00:41:04,840 --> 00:41:08,000 Speaker 1: rounds to help pay out high dividends early on, which 674 00:41:08,040 --> 00:41:12,000 Speaker 1: attracted more investors, and then they gradually began to decrease 675 00:41:12,160 --> 00:41:15,840 Speaker 1: the amounts they were paying out. Meanwhile, the actual performance 676 00:41:15,840 --> 00:41:18,400 Speaker 1: of the mining pool wasn't really providing much in the 677 00:41:18,400 --> 00:41:21,239 Speaker 1: way of revenue. It was all down to that classic 678 00:41:21,440 --> 00:41:26,280 Speaker 1: robbing Peter to pay Paul. According to investigators, internal communications 679 00:41:26,280 --> 00:41:29,880 Speaker 1: within the bitclub network showed that the scammers held their 680 00:41:29,920 --> 00:41:34,200 Speaker 1: targets in contempt, calling them morons and sheep, so it 681 00:41:34,200 --> 00:41:36,520 Speaker 1: seems pretty safe to say that they were fully on 682 00:41:36,600 --> 00:41:39,359 Speaker 1: board with pulling a fast one on their marks until 683 00:41:39,400 --> 00:41:43,040 Speaker 1: they got caught. Anyway, the use of cryptocurrency as the 684 00:41:43,080 --> 00:41:46,279 Speaker 1: foundation for ponzi schemes is bad enough to prompt the 685 00:41:46,400 --> 00:41:50,840 Speaker 1: US Securities and Exchange Commission or SEC to publish a 686 00:41:50,840 --> 00:41:54,640 Speaker 1: brochure warning people about them, and it's a good reminder 687 00:41:54,800 --> 00:41:57,560 Speaker 1: that when you are faced with an opportunity, you should 688 00:41:57,600 --> 00:42:02,680 Speaker 1: examine that opportunity critically. If the promised returns seem too high, 689 00:42:03,040 --> 00:42:05,880 Speaker 1: if they are significantly higher than you would find elsewhere 690 00:42:05,920 --> 00:42:09,080 Speaker 1: on the market, If the means for generating revenue seem 691 00:42:09,160 --> 00:42:13,759 Speaker 1: overly complicated or even convoluted, those are all red flags. 692 00:42:14,160 --> 00:42:17,280 Speaker 1: If the opportunity is reliant on people with a shared affinity, 693 00:42:17,560 --> 00:42:21,120 Speaker 1: such as when Sarah Howe targeted unmarried women, that's another 694 00:42:21,160 --> 00:42:24,400 Speaker 1: big red flag. I think the real lesson here is 695 00:42:24,400 --> 00:42:27,520 Speaker 1: that the smoke and mirrors can change over time, but 696 00:42:27,600 --> 00:42:30,480 Speaker 1: in the end, these schemes all rely on the same 697 00:42:30,640 --> 00:42:33,000 Speaker 1: old tricks as what we saw that more than a 698 00:42:33,000 --> 00:42:36,360 Speaker 1: century ago, and as long as the scam seems to 699 00:42:36,440 --> 00:42:39,880 Speaker 1: work on people, there will no doubt be con artists 700 00:42:39,920 --> 00:42:43,680 Speaker 1: willing to use it. It can be extremely profitable, at 701 00:42:43,760 --> 00:42:47,080 Speaker 1: least in the short term. Now, you don't hear many 702 00:42:47,160 --> 00:42:49,759 Speaker 1: stories of people who ran that kind of scheme and 703 00:42:49,800 --> 00:42:52,399 Speaker 1: then were able to make a clean getaway. A lot 704 00:42:52,440 --> 00:42:55,360 Speaker 1: of these stories ultimately end with the con artists caught 705 00:42:55,400 --> 00:43:00,239 Speaker 1: and prosecuted. So I guess crime does pay, but it 706 00:43:00,239 --> 00:43:04,879 Speaker 1: also demands its own high price. And that wraps up 707 00:43:05,040 --> 00:43:08,120 Speaker 1: this episode of Tech Stuff. I wanted to cover it 708 00:43:08,160 --> 00:43:12,160 Speaker 1: because again, I think critical thinking is something we all 709 00:43:12,320 --> 00:43:16,400 Speaker 1: can focus on and get better at, myself included. And 710 00:43:16,440 --> 00:43:20,600 Speaker 1: it's good to remember that just because something might involve 711 00:43:21,040 --> 00:43:25,600 Speaker 1: a cutting edge technology doesn't mean that underneath there isn't 712 00:43:25,640 --> 00:43:29,640 Speaker 1: a very old hoax or scam at play. We've seen 713 00:43:29,680 --> 00:43:33,799 Speaker 1: it over and over with a lot of companies. Farnose 714 00:43:33,960 --> 00:43:35,960 Speaker 1: is one that comes to mind that wasn't so much 715 00:43:35,960 --> 00:43:38,440 Speaker 1: a Ponzi scheme, but it did look like it was 716 00:43:38,480 --> 00:43:41,000 Speaker 1: a bit of a shell game with trying to keep 717 00:43:41,040 --> 00:43:44,640 Speaker 1: investors in the dark as far as how far along 718 00:43:44,880 --> 00:43:49,120 Speaker 1: or not far along the technology was. So again, it's 719 00:43:49,120 --> 00:43:51,280 Speaker 1: good for you to use critical thinking when you're looking 720 00:43:51,320 --> 00:43:54,560 Speaker 1: at chances to invest money. You don't want to get burned. 721 00:43:55,000 --> 00:43:57,359 Speaker 1: You want the best chance for success, and you want 722 00:43:57,400 --> 00:44:00,400 Speaker 1: to support people who are, you know, doing real work 723 00:44:00,440 --> 00:44:05,720 Speaker 1: out there. I hope you enjoyed that episode of tech Stuff, 724 00:44:06,320 --> 00:44:10,080 Speaker 1: and I'm hoping that tomorrow I'll be able to do 725 00:44:10,160 --> 00:44:13,239 Speaker 1: a regular news episode. I mean, I will say I'm 726 00:44:13,280 --> 00:44:18,960 Speaker 1: feeling better today than I was last night, but I'm 727 00:44:18,960 --> 00:44:21,319 Speaker 1: not I'm nowhere close to one hundred percent, So I'm 728 00:44:21,360 --> 00:44:26,040 Speaker 1: hopeful that maybe by resting up today, I'll be back 729 00:44:26,080 --> 00:44:31,680 Speaker 1: in fighting shape tomorrow and we can do another rousing 730 00:44:31,880 --> 00:44:35,759 Speaker 1: tech Stuff news episode. Anyway, I hope all of you 731 00:44:35,920 --> 00:44:39,279 Speaker 1: are well, that you've all avoided food boys name because boy, 732 00:44:39,480 --> 00:44:44,240 Speaker 1: it's the pits, and I'll talk to you again really soon. 733 00:44:50,160 --> 00:44:54,840 Speaker 1: Tech Stuff is an iHeartRadio production. For more podcasts from iHeartRadio, 734 00:44:55,160 --> 00:44:58,880 Speaker 1: visit the iHeartRadio app, Apple Podcasts, or wherever you listen 735 00:44:58,880 --> 00:45:01,680 Speaker 1: to your favorite shows in the