The Ponzi Express

Exposing the dangers of the Online Ponzi.

Tuesday, March 14, 2006

Autosurfing, Stormpay, Scams and Chicken Farming

Just a short post, linking to a few interesting articles concerning Stormpay, autosurfing and erm... chicken farming.

Can Online Payment Processors be Trusted?
Autosurf or Autoscam, Part 1
Autosurf or Autoscam, Part 2
Stormpay, 12Dailypro and the Internet Farmers

Tuesday, February 07, 2006

So, are Autosurfs ponzis?

I am inclined to agree, judging by the number of failed autosurfs in the last year or so. But, it would be foolish to lump all of them together. It's like someone saying that all Germans are evil (because of the two World Wars), which is a generalisation that has no bearing at all.

The problem with autosurfs, is that they operate outside the norms of government control. This difficult in regulation makes them prime suspects in every conceivable sort of criminal activity: money launder, tax evasion, ponzi schemes, and that's just the tip of the iceberg.

Now, some autosurfs seek to differentiate themselves, in saying that they have a maximum membership quota, e.g. 100,000 members, after which, the site goes private. Now, a ponzi scheme requires the influx of new members. That's how ponzis work. New money to pay the early birds. If the autosurf is sustainable without the influx of new members, would that clear the site from guilt? We have yet to see an autosurf prove their long-term sustainability without a shadow of a doubt. However, the industry is still in its infancy, so it could still be too early to tell.

I've been following the 12DailyPro/StormPay/Autosurf fiasco for the last couple of weeks, and it's messy. All parties claim innocence, flinging accusations against each other (in an effort to divert blame, no doubt). There is some element of truth in the claims and allegations (No smoke without fire). I am of the view that everyone involved bears some of the blame.

I would like to refer to the case of the original ponzi. Thousands of investors lost money in the scheme, while a few made money. Now, when the scheme was still going strong, people were throwing money at Ponzi. Ponzi used the money, and bought a 38% stake in Hanover Trust Company, in which a large portion of the invested funds were deposited (at 5% annual rate of interest). Now, later investigations would prove that the bank KNEW about Ponzi's dealings and that it WAS a scam. However, the bank sought to maintain this business relationship (due to the large inflow of money that could then be loaned out). The bank collapsed in the aftermath of the ponzi scheme, along with a few others (where Ponzi had also deposited funds), as Ponzi's deposits were confiscated to repay the investors.

Now, if we compare this to the current situation, we can draw some obvious comparisons. Stormpay ('bank') acts as a store of funds. Autosurf company (alleged 'Ponzi') generates inflow of funds to Stormpay, which Stormpay is glad to receive, thanks to their (high) transaction fees. For Stormpay, the more transactions the better.

It would take a fool to believe that Stormpay didn't know what was going on. They were just unwilling to let go of such a lucrative cash cow. IF autosurfs are ponzis, Stormpay is liable as well, not for failing to identify the true nature of its clients, but rather, for turning a blind eye to a situation as long as the money continued to flow.

Related links:
So is Autosurfing Legitimate?

Stormpay, 12DailyPro, Autosurfs and other controversies. Articles in chronological order.

Friday, February 03, 2006

The Madness Continues...

Autosurfs all over the globe have been affected by StormPay's new policy, introduced effective of 30.1.2006. Accounts have been frozen, and there has been no word from StormPay. Scared yet?

The Stormpay Controversy.

Wednesday, February 01, 2006

Trouble in StormPayLand?

StormPay is cracking down on online fraud. So they say. Among the many forced to change their ways, is 12DailyPro. Other autosurfs are expected to follow, or face having their assets frozen.

For more information, please click here.

Tuesday, January 31, 2006

Scams in your Spam

Ever check your email, and find spam mails about some unknown company on the verge of being the NEXT big thing? Well, on R.J. O'Hara's site, you can find a list of such emails, and their claims.

Have a look and see, and perhaps laugh at the ludicrous claims.

Monday, January 30, 2006

Avoid Ponzi Spam

Never give out your real email address for anything ever again.
SpamGourmet is the answer.

For more spam solutions, click here.

Sunday, January 29, 2006

The Original Ponzi

Charles K. Ponzi. Google it. This is the name of the man who made the "get-rich-quick" scheme infamous. Charles Ponzi is just one of his aliases. Variants of the name include Charles Ponei, Charles P. Bianchi, and Carlo/Carl.

Little is known about Charles Ponzi's childhood, nor do we really care. What we do care about is what he did that made the name Ponzi synonymous with scam artist.
An Italian immigrant, Ponzi came to America in 1903 to make his fortune. Small in stature, he more than made up for it with his larger-than-life personality.

So, what was Ponzi selling? Well, it was international postal reply coupons (IPRCs). Ponzi noticed that the IPRC he received from Italy was worth 1 cent in Italy, but about 6 cents in the USA. The grand idea was, that he would buy large quantities of international postal reply coupons in countries with weak economies (remember that this was just a few years after World War I and Europe was still recovering), and sell them to a third party at a favourable exchange rate, and then exchange it back into US dollars. Ponzi claimed that the net profit from all this dealings would be in excess of 400% of investment.

However, he neglected to mention a few details. Bureaucracy and red tape would slow down the various exchange processes. Currency exchange (especially in the large quantities proposed) took time. Even with the best of scenarios, it would earn nowhere near that 400% claim.

So, Ponzi set up a company called the Security Exchange Company (a very official sounding name) and offered a profit of 50% in 90 days. He however claimed that he would be able to deliver that 50% in 45 days, meaning that someone could potentially double his money in 90 days! The news spread quickly, as people started throwing more money into the 'venture'.

This phenomenal growth rate attracted the curious eyes of the media... and the law.
The walls came crashing down, after The Boston Post (in July 26, 1920) published a front page article questioning the legitimacy of the Ponzi business/scheme. Investors flocked to his door, demanding a refund. Initial worries were allayed, with those demanding refunds getting their money back - almost 1000 claims were settled that day (those were the lucky ones, IMHO). In fact, Ponzi even allowed auditors to come in to check his books!

Public support grew, and some even suggested that Ponzi should enter politics (LOL). Ponzi continued to dream, envisioning bigger and better things to come.

The scheme eventually collapsed on August 10 1920. Auditors, banks and the media declared that Ponzi was bankrupt. Ponzi's criminal past was brought to light - forgery, smuggling, jail time. The authorities finally arrested Ponzi on August 13th.

This wasn't the end of the story. Lawsuits, criminal proceedings, and various court trials followed. Five banks eventually closed down (the ones which Ponzi had used).
Thousands of people lost their money, getting back only a fraction of their investment after legal action.

Ponzi fooled thousands into believing, and for a while at least, he was a millionaire (and a hero of sorts). At the height of popularity, the scheme was pulling in $1 million a week! In total, there were about 40,000 investors and $15 million (worth about $140 million in today's dollar) in invested money.

So, what happened to Charles Ponzi? Well, he was sentenced to 5 years in federal prison, and a further 7-9 years by Massachusetts authorities. Released on a $14,000 bond, pending an appeal, Ponzi disappeared. But not for long. The following years were filled with scam after scam, jail after jail. Eventually, he was deported to Italy in 1934. None of his later works/schemes would compare to the 1920 scheme.

Ponzi died in 1949, with just enough money to cover the costs of burial. A fitting end to one of the world's most famous con artists.

I will always think of Ponzi, not only as an opportunist ever willing to exploit human greed, but also as an innovator and risk taker. He was constantly thinking up new ways to make money (albeit illegally), but that is the spark that we see in all the top businessmen in the world.

Wikipedia [2]
Crimes of Persuasion
US Securities and Exchange Commission (SEC)
Mark Knutsen's Charles K. Ponzi Website
Useless Information
What is a Ponzi?
Pyramid Schemes, Ponzi Schemes, and Related Frauds
Pyramid Schemes (U.S. FTC)
History and Nature of Ponzi Schemes