Words That Should Become The New ‘Shot Heard ‘Round The World’ Spoken By Former CFTC Enforcement Chief

By coincidence the words appear in the 13th paragraph of a Chicago Tribune story invoking investors’ sustained lack of luck and reporting on a new series of Ponzi schemes the U.S. Commodity Futures Trading Commission is investigating.

The words were spoken by Gregory Mocek, former CFTC enforcement director, and are the most important words spoken to date during the financial meltdown. They should be the new “Shot heard ’round the world.”

Ponzi schemes involving foreign currency trading have been so rampant they could “eat up all of the commission’s investigation and litigation resources, and there will be nothing left to protect the integrity of legitimate markets,” Mocek told the newspaper.

It’s the problem in a nutshell. With great economy and not an ounce of hyberbole, Mocek defined the problem. As always, the question is, “Will anybody listen?”

Give Them Big Guns And A Camera

Regulators need the financial equivalent of automatic weapons provided the DEA when drug dealers switched from 38s to Uzis. They need bigger budgets, more enforcement staff, more computers, more laptops, more training, more undercover agents, more political support, less criticism and tools that work. At the same time, they need better PR skills, more news savvy and the power of arrest. They need cameras to take mugshots, a website that publishes the mugshots, and the ability to explain the arrest in nontechnical terms.

To the best of our knowledge, no federal law-enforcement agency provided photos of Bernard Madoff or R. Allen Stanford, despite the extraordinary allegations against them. The public needs those photos. The media need those photos. Bloggers need those photos. Webmasters need those photos. It’s a key step in getting this cancer under control. The Sarasota County Sheriff’s office provided a photo of Arthur Nadel. Why can’t federal agencies do the same?

Clean Up The Internet

It is a mistake of grand proportions to assume the Ponzi problem and the financial skullduggery exist only in the brick-and-mortar world, that the practitioners exclusively wear suits, read the Wall Street Journal and shuttle from appointment to appointment in fine rides like Madoff or Stanford.

Indeed, many of the most egregious offenders don’t have well-known names, spend much of the day in their underwear, read Internet boards as opposed to the Journal, don’t have appointments that even resemble anything traditional and don’t even leave their homes — not even to go to the bank.

They are destroying wealth. They are sucking hundreds of millions of dollars out of the economy, perhaps even billions of dollars. Their ability to accumulate wealth at the expense of others has nothing to do with skill and has everything to do with timing: They read High Yield Investment Program (HYIP) and “autosurf” boards on the Internet, send email to their followers when they spot an opportunity, fund their purchases via wire transfer through Canada and, when it’s time to take their “profits,” they take them by wire transfer and deposit them in banks via ACH.

At this very minute, hundreds of HYIPs and autosurfs are selling unregistered securities to U.S. residents and are using virtually pure Ponzi models to do it. They’re advertising huge returns — 30 percent a month and even 144 percent in 12 days — while stressing in U.S. English that they are safe opportunities and outside the reach of U.S. law enforcement in places such as Panama and Uruguay.

Because they use U.S. English and their websites can be copied, nonEnglish-speaking criminals and people who speak limited English as a second language are simply cutting and pasting content, starting their own HYIPs and autosurfs, paying off members to instill early trust — and then vanishing with U.S. dollars when they’ve met their criminal target.

And then starting all over again.

They need only about $400 to steal tens of millions of dollars. If they already own the php script, their investment shrinks to the price of a domain name, a hosting account for a month or two and their time.

Canadian companies used by the criminals include AlertPay and SolidTrustPay. These companies are permitting money-laundering by turning a blind eye to it. If they do take an overt step to instill client discipline, they get targeted by DDOS attacks that knock their servers offline.

PayPal won’t touch this business. Much of it went to Canada when the United States put an end to eGold’s love affair with customers who laundered money through the system.

A surf known as “MegaLido” is a case in point. No one other than the operator knows for certain where MegaLido was located. It came to life in the aftermath of the government seizure of nearly $100 million from Florida-based AdSurfDaily Inc. amid Ponzi allegations, and even was promoted by ASD members. MegaLido used AlertPay and SolidTrustPay, recruited an estimated 27,000 members, collected money from the members — and then simply vanished.

It looks as though it had a partner in the crime — a surf known as Instant2U — which also fled with money it collected. AlertPay and SolidTrustPay reportedly are providing partial refunds from money the criminal surfs left in the system, but it wasn’t enough to make “investors” whole.

See this post. And see this post.

AlertPay suffered a DDOS attack during the process and was knocked offline.

Forex scheming also is a big part of these games. CFTC, the SEC, the FBI, the IRS and prosecutors need tools. They need political clout behind them. It is clear that the American people have had it with Ponzi schemes and massive financial fraud. There never has been a better time for politicians to curry favor with voters by blasting these schemes back to the Stone Age.

The new “Shot heard ’round the world’ should be plugged into one of the bailout packages because it provides exceptional value for taxpayers, exquisite headlines for politicians and exceptional tools for law enforcement to nuke these operations and stem the flow of poison.

At the moment, advocates for Ponzi schemes — yes, the schemes have advocates and even crackpots who want to sue the government for enforcing existing laws — are sending letters to Sen. Patrick Leahy.

They want Leahy, chairman of the Senate Judiciary Committee, to investigate the prosecutors and the U.S. Secret Service for breaking up the ASD Ponzi scheme. Some of the very same people are promoting offshore scams in Panama and Uruguay.

It is time to nuke these miserable businesses. Gregory Mocek laid out the problem, and he couldn’t be more right.

Fire the shot.

Read the Chicago Tribune story.

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11 Responses to “Words That Should Become The New ‘Shot Heard ‘Round The World’ Spoken By Former CFTC Enforcement Chief”

  1. Much of it went to Canada when the United States put an end to eGold’s love affair with customers who laundered money through the system.

    No, Cota Rica. Most of the HYIPs that were using EGold switched to Liberty Reserve based in Costa Rica. Most of the ponzi HYIPs use something called “GoldCoders” script, written by Russian programmers, often alleged to have hidden back doors so the “Russian hackers” can steel the dosh. When EGold was indicted, it took a few weeks for the script to be changed to use Liberty Reserve.

    Forex scheming also is a big part of these games. CFTC, the SEC, the FBI, the IRS and prosecutors need tools. They need political clout behind them.

    Politicians tend to respond by adding more laws. What is needed is laws that make the web hosting, and advertising of these ponzi HYIPs explicitly illegal. There are some existing laws, so what is really needed is better enforcement of the existing laws.

    “Clean up the internet” by having law enforcement shut down ponzi friendly payment processors, ponzi friendly web hosts and ponzi friendly promotion sites. And charge the Faith Sloan’s, TeamAaronShara’s and Clifton Ebersold’s with selling unregistered securities.

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  2. Hi Tony,

    I don’t have much of a bone to pick with anything you said above.

    Liberty Reserve is a big part of the problem. So, too, are AlertPay and SolidTrustPay.

    One new law I do believe would be helpful is an express law that specifically addresses HYIPs and autosurfs and prescribes stiff criminal penalties. My reasoning is that the securities laws are too abstract. People don’t instantly make the connection with securities because the “product” is couched as “advertising.”

    Patrick

    They would if a specific law that explained

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  3. Tony,

    Thx for the information. Perhaps the government should listen to the ASD Leahy-letter-writing supporters….. The government is accused of “stealing” $93MM from members. The truth is the government seized those funds from Andy Bowdoin, and is magnanimously planning on returning the money to Bowdoin’s victims. Perhaps they SHOULD keep the funds, and use those funds to aggressively go after the Ponzi schemes and their promotors (like FS), and continue to use the funds seized to go after more funds, etc. Many of the people who file claims don’t deserve their money back — they knew full well it was a scam and this wasn’t their first time around the block. (although many others are legitimate victims). It would also be fun, and technically possible (through TCP/IP identification of forum posters, account holders, etc.), for the government to track who amongst the 100,000 ASD members had ever been part of another HYIP or scam and then exclude them from the recovery process. None of this is ever going to happen though as the government would be pilloried even worse than they are now if they did that…but we can always dream…. At some point I’d like to see that sort of shock therapy approach.
    Tony H:

    ……. What is needed is laws that make the web hosting, and advertising of these ponzi HYIPs explicitly illegal. There are some existing laws, so what is really needed is better enforcement of the existing laws.“Clean up the internet” by having law enforcement shut down ponzi friendly payment processors, ponzi friendly web hosts and ponzi friendly promotion sites. And charge the Faith Sloan’s, TeamAaronShara’s and Clifton Ebersold’s with selling unregistered securities.

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  4. One very simple thing would be if Canada would pass a law that holds payment processors responsible for the customers they accept. STP and AP are giving out “partial refunds” from what are more or less abandoned money left in their accounts. If one of STPs ponzi scheme customers were to be a confirmed ponzi scheme and they had to cover the losses of the victims, I can promise you they’d start looking a little closer at who they took as customers.
    Of course, part of the problem is how easy it is to become a payment processor in Canada, as opposed to the US where they have to provide bonds in most states and register with the treasury. They are almost as regulated as a bank and that’s as it should be. STPs owners got into the business after they ran a failed autosurf ponzi scheme, how is that possible. In the US, you at least have to pass a background check.
    Another possible reform would be for the Federal Reserve to refuse to process transactions with anonymous payment processors. Sure, they could still send money orders, but that would slow down the velocity and thus cut the size of the scams, and also would expose the operators to charges of mail fraud.

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  5. No kidding….unbelievable. It almost seems as if some laws are set up to encourage these kinds of things. I suspect in our (and Canada’s) desire to go very far in order to protect one’s rights legally, we also open ourselves up to that which we are seeing. I guess I believe that the skewness of miscarriages of justice should be wildly in favor of letting the guilty go free, but c’mon…..can’t we at least narrow the distribution, as it were?

    Another though on your money order idea — why not make the involved parties in the anonymous payment processing execute the transactions using wheelbarrows full of pennies, or some such nonsense? I have a mental image of Bowdoin sorting through ~10 billion pennies, counting them out 50 at a time into paper rolls, like I did as a kid……

    Gregg Evans: …… STPs owners got into the business after they ran a failed autosurf ponzi scheme, how is that possible. In the US, you at least have to pass a background check.Another possible reform would be for the Federal Reserve to refuse to process transactions with anonymous payment processors. Sure, they could still send money orders, but that would slow down the velocity and thus cut the size of the scams, and also would expose the operators to charges of mail fraud.

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  6. to put money into AVG you must have an Ewallet acount. does anyone know about tht company?

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  7. Ewallet was bought by AVG, so everything is in house and easily controlled by AVG.

    In regard to the other issues, until they begin criminally charging the promoters of these scams, get convictions, in addition make them pay all the money back they stole, make them pay interst on all those monies, and pay a fine to boot; these will continue to proliferate. There has to be a price to pay, and it has to be a major price. Until then it is business as usual, and going from one to another program with the same people continuing to take advantage of the ‘newbies.’

    One of the reasons why Eagle Research Associates was formed was to aid law enforcement with research and investigative services. When you have 68% of your white collar crime division moved to Homeland Security, you have a tremendous hole in law enforcement’s ability to conduct investigations of these scammers and prosecute. Since law enforcement does not have the money to pay for this service provided by Eagle, Eagle was formed as a nonprofit corporation. But it takes the support of the public for Eagle to do its mission. A risk worth taking.

    Yes it would be nice if all the money confiscated in ASD was used to go after the bad guys. It would also be nice if law enforcement would hire Eagle to help. But that is not going to happen. With limited resources (read money, Eagle has been quite successful. With a lot more money we could do even more. Hopefully that day is rapidly approaching when Eagle will have the money to do more. In the meantime we go after them one scam at a time. We wish we could go after them 10 or more at a time.

    I hope my comments are not misconstrued as being touting Eagle or begging for money; but as they are intended exposing the sad truth of the situation that exists with law enforcement and stopping scams. Limited resources = limited arrests and convictions. That is the reality.

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  8. To take a contrary point of view, where exactly is the evidence that creators or participants in HYIP programs have a “mens rea” or guilty mind, and are intending to participate in fraud? The Bernie madoffs of the world actually confessed that it was their intent to defraud people. If people willingly engage in this activity with no intent of harming others, who has been injured? Who died, became God, and decided that all such programs and users must conform and agree with the writer that such sites are wrong, and that this popular choice in the market must be criminalized?

    Does the writer even understand the concept of respecting the market, and the freedom of people to take their own risks with their own money? And does the writer accept every single claim made by authorities against these sites and processors on face value? How has a “Ponzi scheme” been confirmed if there has been no jury trial that reached this conclusion, just a decree by a bureaucrat conducting a probe, who has (by seizing assets) coerced the subject into ‘confessing’ under duress?

    I suggest this entire matter can be reimagined as assault on freedom and legitimate market choices, by authoritarian busybodies (public and private) who just want sites they don’t like to be made illegal.

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  9. Hi rsmllc,

    rsmllc: I suggest this entire matter can be reimagined as assault on freedom and legitimate market choices, by authoritarian busybodies (public and private) who just want sites they don’t like to be made illegal.

    Yes, it can be reimagined that way. It gets reimagined that way each and every time an autosurf Ponzi fails and/or the operators run with the money.

    Another way to reimagine it is for serial promoters who don’t want their gravy train to go away to go to forums and pose as the voices of reason — talking about what people need to realize about “the industry.”

    Yesterday dozens and dozens and dozens of people posed as the voices of reason after Premium Ads Club died, after collecting money from 500 new members in the past four days.

    There is nothing noble about this business model. Nothing at all.

    Patrick

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  10. RSMLLC,

    I respect your opinion on your perspective, but let me offer this. Any program that fails the mathematical sustainability test outright is a scam (see the Black Box Method post). The methodology is rooted in the fundamental mathematics of any given business model. As such, the output is not a matter of opinion or conjecture, but mathematical certainty. One can argue all day that 1+1 does NOT equal 2, but such arguments are fallacious. Same mathematical certainty with the Black Box analysis. ASD and AVG and PBX and others fail the test miserably. Apply the method to the HYIP of your choosing (or I can do it for you). If the program is unsustainable, it’s a scam, and the overwhelming majority are illegal (a conditional — I haven’t seen one that is legal yet). It is fair, a priori, to analyze a site’s business model mathematically, and proclaim the results of the math. That however, is fundamentally different that offering an opinion.

    The fact that a promoter isn’t confessing their intent to defraud doesn’t mean they don’t intent to defraud. Also, one can of course willingly do anything one wants, but one must face the consequences of one’s action. Participating in illegal activities comes with consequences, and as to the “who is harmed” question, thousands are harmed. Your Madoff analogy does not hold water. You would argue that Madoff victims exist because Madoff “confessed,” although he has not done so legally yet. If Madoff would profess innocence, by your reasoning then everyone who willingly invested with Madoff entered into that relationship voluntarily and are thus not victims of the Madoff Ponzi.

    rsmllc: To take a contrary point of view, where exactly is the evidence that creators or participants in HYIP programs have a “mens rea” or guilty mind, and are intending to participate in fraud? The Bernie madoffs of the world actually confessed that it was their intent to defraud people. If people willingly engage in this activity with no intent of harming others, who has been injured? Who died, became God, and decided that all such programs and users must conform and agree with the writer that such sites are wrong, and that this popular choice in the market must be criminalized? Does the writer even understand the concept of respecting the market, and the freedom of people to take their own risks with their own money? And does the writer accept every single claim made by authorities against these sites and processors on face value? How has a “Ponzi scheme” been confirmed if there has been no jury trial that reached this conclusion, just a decree by a bureaucrat conducting a probe, who has (by seizing assets) coerced the subject into ‘confessing’ under duress? I suggest this entire matter can be reimagined as assault on freedom and legitimate market choices, by authoritarian busybodies (public and private) who just want sites they don’t like to be made illegal.

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  11. A priori math insolvency does not prove willful intention of wrong doing. One is an equation, the other is an inference from it, and thus an opinion. Absent a micacle, it is a mathematical certainty that 100% of us will die some day. By this premise, anyone who saves somebody’s life is a scammer, since he knows that life wasn’t sustainable in any event. Autosurfs are apparently the only entity that must prove permanent solvency, in order to not be a fraud. Do these programs have a right to be a short term business, as with companies that exist solely to promote a specific Olympics? Do its users get to choose to work a short term program, or shall we deny them the option to so choose?

    It is my impression that Madoff offered his admission of guilt freely to the public. But if he did not, then even he should get his day in court as well, and not be CONCLUDED to be a scammer until a jury says so. The same goes for all the surf/hyip programs subject to ‘press release prosecutions’ where assets are seized (causing insolvency), and the operators CANNOT get a jury trial because of the time/expense they can now not afford, and so cut a deal. These coerced settlements should in no way be mistaken for true discovery of the truth.

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