Iyfjky

Question

Inspired by 20% monthly mining vs 5% monthly trading

What would prevent me from investing $1,000 for a month, pulling out, investing with a different scammer, rinse & repeat?

This question is not specific to the inspiration question but Ponzi/Madoff/investment scams in general. What stop-gaps do scammers implement to prevent me from actually taking advantage of them?

Are there legally binding stop-gaps such as contractual clauses which state something like "Must invest for 12 months minimum. Early withdrawal forfeits all interest and costs 20% of principle."

Does anyone have samples of real scammer investment contract clauses which could be considered as stop-gaps?

Someone who may or may not have accidentally, succesfully done this: money.stackexchange.com/questions/99575/â€¦ — 18 hours ago
@stannius I saw that one but that's just a scam gone wrong for the scammer. I am asking about deliberately taking advantage of Ponzi-type scams. — 18 hours ago
In a Ponzi scheme, you would be taking advantage not of scammers, but of their victims. So... conscience? — 13 hours ago
There is allegedly a wise saying among conmen that "you can't cheat an honest man". Many scams and confidence tricks are deliberately designed in a way that the victims are lured into the scheme by making them think they can outsmart the scammers. — 7 hours ago

DJohnM 3,5481918 · Accepted Answer · 2018-09-12 19:38:07Z

(Under US investment laws)

Assume for the moment that you succeed in your plan. You invest some money in the Ponzi scheme, accumulate some "earnings" on paper, and then are able to get the scammer to return your original investment and your "earnings". You then find another Ponzi scheme and repeat...

Things look great for you...

Then, the Ponzi schemes falls apart, as they must.

What follows is detailed here: https://www.wilsonelser.com/files/repository/PHLY_Article_Clawback.pdf

Briefly:

Various government agencies (SEC, SIPC) appoint a Trustee to liquidate the Ponzi scheme's assets to pay off the defrauded investors to the extent possible.

The Trustee can reclaim to the scheme, for this purpose, various amounts paid out previously to investors; these amounts fall into various categories.

Money paid out shortly before the collapse can be reclaimed in total, principal and "earnings". No guilt on the part of the recipients is implied or necessary. Insiders have a longer definition of "shortly".

If you innocently receive a pay-out before the "shortly" period above begins, the returned principal is safe. But the "earnings" can be reclaimed, as they are really some one else's investment, distributed to advance the fraud.

Most relevant to the OP:
If you know, or should reasonably have known, that the investment is a Ponzi scheme, ("guilty mind") then all payment to you from the scheme (principal and earnings) can be retrieved by the trustee.

The trustee can only go back so many years to reclaim payouts; the number varies from state to state, as well as federally.

So let's say you invest $1000 in Ponzi #1, get out with $1200, put $1000 in Ponzi #2 etc., etc...

After Ponzi #5 you have your original $1000 and $1000 more total from scamming the scammers. And you knew they were scammers, and you invested anyway.

You could owe various trustees a total of $6000...

score 67 · Answer 2 · 2018-09-12 18:27:40Z

The scammers not giving your money back would prevent you from pulling out of the "investment" (scam). They may pay out the claimed returns for a month or a few months in order to build credibility to get more "investors", but if they're trying to scam you, there is no way they'd give back all of your money once they have it.

As comments and other answers have pointed out, scams like these may be willing to return all of a victim's investment in some cases to maintain the appearance of legitimacy, in order to attract more "investors" (victims). What prevents you from exploiting this to scam the scammers is that they have a lot more information than you. They know how much money they have, how much they are expecting to bring in, and whether it's worth it to them to pay you off. You may think you're an early investor and can safely get your money back, but the scammers may be ready to cut and run, and have already decided you get nothing. They know these things; you can only guess.

If you're early enough in the ponzi and you're a small enough investor, you might get your money back since they want to ride the appearance of legitimacy as long as possible, but hardly a good gamble to take. — 21 hours ago

score 27 · Answer 3 · 2018-09-12 17:01:15Z

What would prevent me from investing $1,000 for a month, pulling out,
investing with a different scammer, rinse & repeat?

Here's how it would typically go:

Scammer offers guaranteed return of 5%/month.

You give scammer $1,000.

Scammer sends you a statement after first month showing 5% return, or distributes 5% to you for some number of months. This builds credibility and lures more "investors" in.

You try to withdraw your initial investment, scammer stalls or refuses.

They typically want to maintain the appearance of legitimacy for as long as possible to keep new money rolling in, so if you are a smaller investor/victim early on, you may get your money back, as long as they can fund it they don't want to draw complaints, but it's not a smart gamble to take.

How long it goes and how likely people are to get some or all of their money back varies wildly. Some ponzi schemes run for years, during which some people actually do make money, but it's other people's principle.

Are there legally binding stop-gaps such as contractual clauses which
state something like "Must invest for 12 months minimum. Early
withdrawal forfeits all profit and costs 20% of principle."

Does anyone have samples of investment contract clauses?

Technically no contract with a scammer would be legally binding since they are acting in bad faith. But yes, some investments have penalties for early withdrawal. One legitimate example: I pay a penalty of 6-months worth of interest if I withdraw my 5-year CD early.

Assuming that the bad faith is not discovered for about 5 years then that clause is actionable by the scammer in the interim, right? — 20 hours ago
@MonkeyZeus Insomuch as they couldn't likely recover any of the money when it all falls apart, this becomes moot, but yeah you wouldn't know the contract was unenforceable from the jump, they'd likely take steps to keep money locked up as long as possible. — 19 hours ago

score 18 · Answer 4 · 2018-09-12 16:41:25Z

When Charles Ponzi was running his famous IRC scheme, he would pay out any investor that asked for their money with the interest that he had promised. More or less invariably they would reinvest that money. It didn't really matter to him as long as he kept getting an in-flux of new money.

In theory, any of those investors could have walked away with a pretty handsome profit. The question is when do you walk away? If you just doubled your money, why not double it again. You can always walk away after that, right?

So, maybe you could do it if you are smarter than the scammers. It's their game though and you probably don't know the rules. You could also find yourself subject to lawsuits from victims since the scammers are definitely not paying you out of their own pocket.

Acccumulation 2,32239 · Answer 5 · 2018-09-12 18:20:00Z

One of the main properties of being a scam is that people who participate, overall, lose money. Some people take their money out early enough to come out ahead. On average, though, they don't. If you can reliably determine when the best time to take your money out is, then you can come out ahead ... but what makes you think you're any better at that than the average person? Ponzi schemes, pyramid schemes, and bubbles are similar in this way: if you think there's a stock price bubble, you might still be able to make money if it rises even more and you get out before it bursts. This is why a bubble can persist even when it's obvious that it's a bubble: people keep buying in hoping that they'll make money selling to other people hoping to to make money selling to other people hoping to make money ... etc. Of course, someone has to be wrong.

If the scammer does it right, then even if you're making money, you're not really making money from the scammer. If the scammer thinks they'll make more money from further marks by giving what they promised (on the other hand, if they think they're better off just taking the money and not giving any back, they'll do so), but then ultimately your money is coming from he other marks, not the scammer. In fact, in a way, everyone who gets out early from a Ponzi scheme is an accomplice: the whole point of giving them money is so that they'll tell other people how great the investment is, and the scammer will take their money, and give some of it back to the early investors. The money goes through the scammer, giving the participants some distance, but much like a pyramid scheme or a bubble, the people who make money from getting in early are getting their money from people who get in later.

And the law often recognizes this. If a scammer takes money from new marks and gives it to you, and this taking of money is deemed unlawful, then it wasn't the scammer's money to give away, so you aren't considered to have lawful possession. Much like if someone steals your car and then gives it someone else, you are allowed to take the car back from that other person even though they aren't the one who stole the car, people who lose money in Ponzi schemes can sue the people who got out early and force them to hand their profits over. This is known as "clawback".

So, in summary: this is a way to possibly to make some money, but very likely lose money, and even if you make money, you'll have to worry about being sued by the people who lost money.

As for stop-gaps, it is perfectly possible to say that an investment won't be paid back until a certain time (it's not like if you get a mortgage, the bank can demand you pay off the principal any time it wants). Some scammers do implement this, or come up with excuses why the money isn't immediately available, but normally, a Ponzi scheme is built around word of mouth from early investors making a lot of money, so keeping investors happy is important.

These lock-ins aren't just used by scammers, though; legitimate investment funds often enter very illiquid positions, and can suffer large losses if they try to exit early, and so often restrict when investors can pull their money out. Michael Burry, for example, saw that in 2002 a bunch of mortgages were being offered with teaser rates, and his investment fund bet heavily against the housing market on the basis that a lot of people would default once the teaser rate expired and they had to start making larger payments. These bets didn't pay off until the defaults, which were years away. Until then, on paper he was losing money month after month.

Bob Baerker 10k11339 · Answer 6 · 2018-09-12 16:35:17Z

up vote
4
down vote

The traditional way for such a scam to work is to get lots of little investors involved, giving them a good return, even returning some/all of their money. That's seed money.

Word of success then spreads and when the perps get enough big fish on the hook, they fold up shop, absconding with a chunk of change. They then set up in another location under a different name and begin the process again.

Human greed and gullibility are the driving forces for the success of this.

answered 21 hours ago

Bob Baerker

10k11339

You explain what a Ponzi scheme is, but you haven't answered his question, have you?
â€“Â donjuedo
16 hours ago

@donjuedo - Given that the OP asked about Ponzi/Madoff/investment scams and given that you think that I have explained what a Ponzi scheme is then I'd say, Mission Accomplished. I suppose that you'll have to read between the lines a bit to understand the nuances.
â€“Â Bob Baerker
16 hours ago

Not trying to be snarky here, but he asked what would prevent him from getting in then out. That's what I was looking for in your answer. I gather that there's nothing really preventing that, like there's nothing preventing one from playing Russian Roulette. Risk is the simple downside.
â€“Â donjuedo
16 hours ago

@donjuedo - The nuance is that since he is a little fish, the perps may let him out because in the grand scheme of things, the amount of money he put in and is paid out is peanuts. Of greater value is the potential PR of his high percentage return. He is likely share or even brag to others. Should one of those recommendations turn into a bigger fish, the perps are on the road to success. Multiply that by many little fish hooking a decent number of bigger fish and when AUM (snark) is sufficient to walk away, Poof! They and the money is gone.
â€“Â Bob Baerker
15 hours ago

Once these are up and running, large gains from the current scam will fund the smaller losses at the onset of the next reincarnation of this scheme (paying the little fish outsized returns). Wash, rinse, repeat.
â€“Â Bob Baerker
15 hours ago

add a commentÂ |Â

J. Chang 5253821 · Answer 7 · 2018-09-13 06:48:07Z

I do not think what you do is scamming the scammer.

It's not scam at all.

However, this is the problem.

You don't know when the ponzy will collapse.

Most ponzy requires people to put some money on certain time. In financial.org, AFTER people put money, they add a special rule requiring minimum balance or whatever so people have to put more money.

But yea, you can pull this out. It's very risky. You are better off trading coins directly.

Every single "investment" that pays constant in dollar is ponzy.

The reason is simple. If I can generate 5% return per month in dollar with no risk, why would I need you to invest? I can just borrow from banks.

DJohnM 3,5481918 · Accepted Answer · 2018-09-12 19:38:07Z