August 9, 2024 • By Dennis Beaver
What would you think upon answering a phone call and hearing, “How would you like to make 21% on your money, guaranteed?”
“Hmmm, sounds interesting, so what’s the catch? Is this a Ponzi scheme?” you would probably wonder. Or, you might think, “Wow! Sure! How do I get in?”
That’s what Ponzi scheme operators are banking on — a way to get a return on your money that no one else can offer.
As a legal affairs columnist, I had to listen to the pitch because no doubt lots of people were hearing the same song, and so I replied, “This sounds like a Ponzi scheme, but can you explain why what you are offering isn’t one?”
Recall Bernard Madoff’s Ponzi scheme?
The largest Ponzi scheme in U.S. history was run by Bernard Madoff, who took investor money promising steady returns. Instead, he defrauded thousands of people out of an estimated $65 billion over the course of 17 years, paying early victims with money from later victims until it all came crashing down in December of 2008.
Many lost their entire life savings. There were suicides. Bernie died in prison. The key that he was running a Ponzi scheme was that he promised steady returns that never varied.
In the real world of investments, that’s now how it works.
Ever Hear of Bitcoin Mining?
“Mr. Beaver, I’m sure you are well acquainted with the digital currency, Bitcoin,” “Iggy” began.
“I work for a digital asset creation organization, based in Austin, Texas and mine Bitcoins with powerful computers.
“We arrange for you to buy computers that we lease from you and use them to mine cryptocurrency, paying a fixed and consistent monthly cash flow. After five years, we buy back the computers for what you paid.
“We make our money by selling the bitcoins that your computers generate.”
(As he was talking, I Googled “cryptocurrency, Ponzi scheme, bitcoin mining scams’ and came up with several articles warning about bitcoin mining scams.)
“I replied, ‘If I understand correctly, these computers solve mathematical riddles and, out of thin air, create something that exists in the digital realm —something I can’t hold in my hands, can’t deposit in my bank, that isn’t tangible and when Donald Trump was President, he declared bitcoin was ‘not money’ and criticized it as ‘highly volatile and based on thin air.’”
Thinking to myself, “Hang on, the price of Bitcoin has never been stable, so how can they guarantee a 21% steady return?”
Beautiful Advertising Material
I asked for, and Iggy immediately emailed, documentation on his company. It is as smooth as a newborn’s behind, describing company philosophy, how the purchase-leaseback works, and shows photos of the contracts customers sign, but they were unreadable.
As it was clear to Iggy that I just didn’t understand this new world of digital currency, the following day one of his managers phoned. Over about a half an hour I listened to a polished explanation of why something I could not touch was the next greatest thing.
“Look at our online reviews. They are all excellent,” he boasted. Most were, but fake reviews can be purchased.
“Well, it is obvious that you are old school, Mr. Beaver. I’ll bet that years ago if someone told you about an investment in cellular networks, or Wi-Fi, you would have had the same skeptical attitude,” he said with a condescending tone of voice.
I replied, “Not at all. Those thing exist! They are real! I can make a cell call! But I do appreciate your time.”
Request from a Reader and Former Client
The next day, a reader and former client phoned our office having received the 21% sales pitch from this company, asking if I knew anything about them, and would I review the company’s contracts for them.
The reader is a retired pharmacist, but my former client sustained a brain injury in an accident and receives monthly checks from an insurance settlement that he wanted to cash in and invest. That scared me.
So, I called Iggy and requested a specimen of their contract to review. And then it became worthy of a Saturday Night Live skit.
The same manager again phoned and explained that everything is DocuSigned online, so there is no sample contract available.
“Oh, so you can’t just run off a blank one?”
“No, we only process a contract after you become a client of ours and are ready to invest.”
And the kicker?
“Besides, we will not have any computers to sell until November.”
“Really? What does that have to do with sending me a sample contract?” He did not answer.
So, is this a Ponzi scheme, a scam or is it legit? I do not know. But anytime someone wants me to invest, lease a building, or establish an ongoing financial relationship, I want to see their contract and have it reviewed by my financial adviser and CPA.
If refused, my answer is no.
Dennis Beaver Practices law in Bakersfield and welcomes comments and questions from readers,
which may be faxed to (661) 323-7993,
or e-mailed to Lagombeaver1 – at – Gmail.com.