I'm shocked, shocked to find that crypto is going on in here!

October 11, 2024 12:14 PM

“What the FBI uncovered in this case is essentially a new twist to old-school financial crime,” Jodi Cohen, the special agent in charge of the FBI’s Boston division, said in a statement. “What we uncovered has resulted in charges against the leadership of four cryptocurrency companies, and four crypto ‘market makers’ and their employees who are accused of spearheading a sophisticated trading scheme that allegedly bilked honest investors out of millions of dollars.”
posted by chavenet (30 comments total)

Liu Zhou, a “market maker” working with MyTrade MM, allegedly told promoters of NexFundAI that MyTrade MM was better than its competitors because they “control the pump and dump” allowing them to “do inside trading easily.”

Holy shit. I know the people running these pump-and-dump schemes aren't exactly rocket surgeons, but "bro we're doing insider trading" seems like a thing you might want to avoid saying or, even worse, writing down.
posted by axiom at 12:21 PM on October 11 [12 favorites]

ProTip™: When you peddle crypscrip, make sure you first ask the other party if they're a cop. They have to tell you! I think I saw this tip on Reno 911, though.
posted by They sucked his brains out! at 12:30 PM on October 11 [23 favorites]

"bilked honest investors out of millions of dollars.”

Is there such thing as an honest investor in cyrpto? Naive investors, sure. Guillible, ok. But honest? like what did those investors think they were investing in? Its like saying the street hustler is ripping off honest investors in 3-card monte orhonest investors in trench-coat rolex watches.

Crypto is a nested scam. There isnt a non-scam component. Its like saying these fraudulent tarrot card readers are giving the real psychics a bad name.

sorry for the derail. continue
posted by No Climate - No Food, No Food - No Future. at 12:37 PM on October 11 [46 favorites]

It's always bittersweet because I love seeing cryptodorks get brought up on charges, but I also don't think crypto investors deserve the protection of the legal system they're trying to circumvent in the first place, let alone active investigations.
posted by 0xFCAF at 12:44 PM on October 11 [10 favorites]

Is there such thing as an honest investor in cyrpto? Naive investors, sure. Guillible, ok. But honest?

Naiveté and gullibility don't necessarily preclude honesty. But I suspect you mean honest in the sense that they believe that crypto will become a widespread technology and are therefore investing because of that belief (versus a less-honest investor who's just trying to cash in). I do think there are such people (albeit, perhaps, not as many as it seems at first blush due to the dishonest ones constantly fronting off like they believe the in power of crypto as a technology). It's a real Schrödinger's asshole type of situation.
posted by axiom at 12:46 PM on October 11 [4 favorites]

Holy shit. I know the people running these pump-and-dump schemes aren't exactly rocket surgeons, but "bro we're doing insider trading" seems like a thing you might want to avoid saying or, even worse, writing down.
axiom

I once worked on litigation relating to the Libor scandal, where in 2012 it was discovered that banks were manipulating the interest rates they were submitting for the daily calculation of the Libor rate (an interest rate average that was the primary benchmark for short-term interest rates around the world). As part of this I listened to recordings of phone calls in which traders directly discussed submitting false rates to help profit on trades. Mind you these recordings were a result of legal compliance requirements for financial institutions of which all traders are aware. So these people knew they were being recorded and still openly discussed committing crimes. It really is baffling.
posted by star gentle uterus at 12:51 PM on October 11 [28 favorites]

And there is no such thing as a no sale call. A sale is made on every call you make. Either you sell the client some or he sells you a reason he can't. Either way a sale is made, the only question is who is gonna close? You or him? Now be relentless, that's it, I'm done. - Jim Young
posted by rude.boy at 12:59 PM on October 11 [1 favorite]

I have never seen an article about cryptocurrency that didn't leave me feeling like crypto is one big scam.
posted by JustSayNoDawg at 1:16 PM on October 11 [12 favorites]

I have never seen an article about cryptocurrency that didn't leave me feeling like crypto is one big scam.

Cryptocurrency was literally designed to be used in the absence of trust.
posted by NoxAeternum at 1:19 PM on October 11 [9 favorites]

You mean to tell me there are dishonest people in the crypto game?

I think I might need to sit down for a second so I can process this.
posted by ivanthenotsoterrible at 1:58 PM on October 11 [5 favorites]

Cryptocurrency was literally designed to be used in the absence of trust.

The bitcoin distributed ledger was designed to be robust in the absence of trust in a particular, narrow, technical sense.

That's not much of a solace to the many, many people who have lost huge sums of fiat currency by buying crypto scrip with their fiat currency.

It also hasn't been much of an impediment to scammers, who are doing just about everything except the specific things the bitcoin distributed ledger prevents (like double spending or spending out of an incorrect account); no doubt the aura of "designed to be used in the absence of trust" contributed to the over-confidence of at least some of their victims.
posted by the antecedent of that pronoun at 2:12 PM on October 11 [20 favorites]

The only reason to buy and hold crypto is to try to sell it to someone else for more money later. It has no intrinsic use, yields no dividends, and cannot be refashioned into something useful.

These people weren't scammed. They were trying to be the scammer, and simply failed.
posted by 0xFCAF at 3:30 PM on October 11 [16 favorites]

These people weren't scammed. They were trying to be the scammer, and simply failed.

A lot of cons depend on convincing the mark they are one of the grifters, or are otherwise getting one over the clueless public. Even so, the person grifted is seldom the only victim.They often lose their kids college funds or their partners' savings.
posted by pattern juggler at 4:28 PM on October 11 [8 favorites]

Gronk: Even me know that not real money!
posted by Billiken at 4:31 PM on October 11 [8 favorites]

but "bro we're doing insider trading" seems like a thing you might want to avoid saying or, even worse, writing down.

Content warning, domestic violence.

My friend's violent ex left a voicemail talking about the violent things he was going to do to them. You might think this was stupid, but you'd be wrong. It's perfectly rational behavior. Why shouldn't he leave those recordings lying around?

My friend and I went to the cops. The voicemail was so bad, my friend asked me to leave the room when they played it for the police. The cops told them to file for a restraining order.

Nothing happened to the ex. He got married to someone else several months later.
posted by AlSweigart at 4:57 PM on October 11 [11 favorites]

The amount of scummy and scammy behavior around any sort of "gold rush" scenario is the stuff of legend. But Crypto, by getting rid of the hassle of dealing with a physical product, has disrupted the whole industry and made it cloud scale efficient. :)
posted by drewbage1847 at 6:33 PM on October 11 [8 favorites]

No it hasn't.
posted by prismatic7 at 8:27 PM on October 11 [1 favorite]

Seriously what?
posted by Carillon at 8:33 PM on October 11 [1 favorite]

Actually, I'm really cross about that statement. "The hassle of dealing with money"? What hassle? I haven't carried physical currency since 2019. What can the magical world of cryptocurrency do that my debit card or wallet app can't? In fact, what can crypto do that my debit card *can't*? Crypto boosters love to bleat about the advantages of their slow, cumbersome, fraud-enabled monopoly money, but how do I use it to buy groceries? Can I pay my rent? Buy medicine? Can I walk into any physical retail location and exchange it for goods and/or services if the vendor has not signed up for the particular range of monopoly money i have chosen?

Crypto is not and never has been currency. It is and additional layer of idiocy that replaces actual commerce with twice as many transaction costs to obtain a much more limited array of items. You're still making exchanges in government money, just with intermediate steps of converting that money to bottle caps and back again.
posted by prismatic7 at 8:39 PM on October 11 [11 favorites]

Crypto has absolutely disrupted the industry of being a scammy gold rush, is I assume the joke drewbage1847.
posted by sagc at 8:43 PM on October 11 [9 favorites]

Uh, I think the physical product referenced was the gold, not money. These scammers have disrupted the gold rush industry by making it run in the cloud.
posted by axiom at 8:52 PM on October 11 [7 favorites]

Meanwhile, crypto organizations are flexing their muscles in the current political cycle.

This time around, without the relative outlier of Sam Bankman-Fried (who was a top Democratic donor in the 2022 midterm elections and whose spectacular downfall occurred just after those elections) the big crypto donors seem to be strongly biasing their donations towards Republican candidates.

In neither case is the influx of a ton of hard-to-trace cash a healthy thing for American politics.
posted by Nerd of the North at 11:39 PM on October 11 [6 favorites]

Cryptocurrency was literally designed to be used in the absence of trust.

In addition to what the antecedent of that pronoun wrote, “absence of trust” in the broadest sense is impossible, leaving this a rather useless observation without unpacking specifically whom we are not supposed to be trusting and with what, and conversely whom we must implicitly trust. The philosophy of trust embedded in the claim above is rooted in a specific libertarian, anarcho-capitalist sort of sensibility that demands significant further examination.

Whom we do not trust: central banks.
Whom we do trust: “the algorithm,” and by extension the people in a position to define the algorithm.

So as not to bury the lede further, “code as law” as an article of faith is perhaps the worst outbreak of engineer’s disease I have ever encountered. From what I have observed the people who are really gung-ho about reinventing money actually know very little about money and monetary policy in the first place.

As it happens, I think algorithmic monetary policy could, in principle, result in much more stable and responsive global economies, but I do not think this can or should be mixed with libertarian notions of “democratizing” monetary policy. Managing a currency by algorithm will require enormously specialized expertise that, frankly, I do not believe even exists as a fully realized discipline at present. Cryptocurrencies are a toy, and an ill-advised experiment being conducted using real people’s money and without their fully informed consent, by people whose motivations and credentials for knowing what they’re doing at all should be questioned a lot more deeply.

Whom we do not trust: the paper-trail surveillance state.
Whom we do trust: anyone claiming to offer the privacy of direct person-to-person cash transactions.

First off, this privacy is illusory. The digital ledger is entirely open to forensic analysis. People have invented techniques to obfuscate transactions to evade scrutiny, but that’s hardly a digital novelty. That’s just plain old transaction structuring and money laundering, and the people using them are simply taking advantage of regulators not having caught up to technology. I am deeply sympathetic to the principle of opposing “nothing to hide, nothing to fear” mentality, but almost by definition the people most invested in transactional privacy are those trying to get away with something they otherwise couldn’t: tax evasion, black markets and financial swindles of all kinds. Even if you trust cryptocurrency at the monetary level, that’s a hugely different thing from trusting what people are doing with that currency.

I mean, if a guy shows up and tells your grandmother, “I have a sure-fire investment for you. All you have to do is get your entire life savings and give it to me, but it has to be in cash.” Are you going to advise her to go close out her bank accounts? Suppose further that, on further examination, the investment is simply buying and holding the currency of an insignificant nation and expecting the value of that currency to increase for assorted specious reasons. Does this seem like a good investment? I mean, even if there has been a global rush causing that currency to go massively deflationary in recent history, does this seem like where a smart person should be parking their money? Whether they know it or not, anybody getting into this market is just praying not to be the greatest fool.

Why does replicating this in digital form make it make sense?

Whom we do not trust: commercial banks.
Whom we do trust: “decentralization.”

Decentralized digital currency allegedly combats bank shenanigans and the “too big to fail” phenomenon. But does it? Decentralization of cryptocurrency falls apart at any reasonable scale for the simple reason that shipping around a cryptographic spreadsheet of every transaction in the entire economy is stupid. And the short history of crypto exchanges has definitely not acquitted them well by comparison to conventional banks. Banks should absolutely be regulated better in the interest of the currency and the individuals dependent on it, but shifting to an alternate currency which offers resistance to regulation as a feature is an extremely dubious solution to that problem.

Hiding it behind the fog of technical novelty does not change the fact that what we have described is simply a novel, largely unregulated financial instrument underpinned by no clear theory of its value. Participating in it in fact requires quite a lot of trust indeed, and it’d take a lot more evidence than rereading the Satoshi white paper to conclude that trust is well-founded.
posted by gelfin at 4:53 AM on October 12 [17 favorites]

Can this energy wasting monopoly money pyramid scheme die please, and take not-actually-AI with it.
posted by GallonOfAlan at 6:04 AM on October 12 [9 favorites]

Thank you sagc - I was absolutely making a tech bro joke.

Crypto is just another scam and the whole "we're getting out from under the thumb of fiat currency" is part of the hook that makes this shit irresistible to the techbros that lean libertarian and Randian (because they will be the bosses after all) and the folks trying to hoard gold to keep their money safe from the Banks and the Government.

I feel a small frisson of guilty glee whenever I hear of someone losing a bit wallet.
posted by drewbage1847 at 8:25 AM on October 12 [6 favorites]

"So these people knew they were being recorded and still openly discussed committing crimes. It really is baffling."

My take on that is that decades of progressively less and less prosecution for financial crimes has given them the idea that they will not be bothered. There's been a lot of that going around these days. I am SO glad to see some of these guys get nabbed.
posted by cybrcamper at 3:45 PM on October 12 [5 favorites]

But honest? like what did those investors think they were investing in?

While ignorance is no excuse, there is an absolutely dire lack of financial literacy among most small time crypto traders. People who don't even understand - among many other things - the basic shape and parameters of what is or isn't a pyramid scheme.

As in they earnestly believe that they're creating real wealth, value and "growth" out of thin air by participating in these systems, and any profits they manage to make are just as legitimate and "real" as investing in a company or stock, or a savings bond or whatever and not just a game of pass the bag of holding with extra steps, economic friction and inherent, mathematically inescapable losses.

The whole concept that any profits they manage to actually extract as fiat are only coming from someone else buying their bags at a higher price - minus the economic frictions, waste and wealth destruction of mining and decentralized real world costs of higher electricity prices, electronic waste, increased costs for computing hardware, etc - is completely and totally foreign to most of these

I see it all the time in the /r/buttcoin subreddit when people come in there trying to argue a whole bingo card list of common pro-crypto talking points and they really and truly believe that there is actual magical wealth creation happening and it's almost impossible to lead them to reason and logic that they're really just engaging in a speculative pyramid scheme with obfuscated with lots and lots of extra steps - and, well, systems that are less pyramid shaped and take more of a decentralized star or octopus shape or something, or many different islands of interconnected pyramid schemes.

Even further, trying to explain that not only is it a pyramid scheme but the concept that it's a wealth desctruction machine through the inherent losses in those systems is absolutely lost on them.

Or the concept that there's no such thing as digital scarcity, or how many times Bitcoin itself has been forked over and over again, or how easy it is to fork and split any given open blockchain.

Like they really don't understand the economic forrces involved that even if any given Bitcoin fork goes to the proverbial moon that it more or less guarantees that it will fork (again) due to network congestion and increased transactional costs.

Or how poorly almost all of these systems scale and that the whatever Bitcoin fork they believe in will never onboard enough people because the more popular it is, the less efficient and useful it is.

It really is MLM marketing for dudebros except without the scented candles or cleaning products or whatever.

And it's honestly really sad and fucked up.

Almost every time I see one of these naive "investors" coming into the buttcoin sub trying to desperately defend and justify their holdings and "investments" and getting all kinds of butthurt and upset that there's a whole subreddit full of people talking shit about crypto and wondering why we're all haters saying anything bad at all that might damage their so-called prospects - if I click through to their user history they usually have dire, depressing shit about their life or shitty jobs right in the first page.

And then even more depressingly you start seeing evidence that not only are they often starving themselves on instant ramen and basic needs to try to - as they say - keep stacking satoshis or whatever, but you also start seeing even more alarming financial shit like liquidating any savings or 401ks, selling any even vaguely valuable belongings and more.

So combine that lack of financial literacy with the fact that traditional or mainstream investing is also full of absolutely massive scams and market manipulation, or listed companies - companies that they may even actually work for and personally suffer from the results of! - doing stock buy backs instead of issuing dividends or raising wages to keep up with inflation or investing in workers - they have reasons to be mistrustful of traditional, established and, heh, any so-called regulated investing more complicated or risky than a savings account, CD or bond.

This combination of financial illiteracy and the wide ranging effects of late stage capitalism makes for an incredibly fertile ground for these people falling for and eagerly buying into crypto and scams.

I don't think that crypto would be even anywhere near as popular if we were actually paying living wages, or if individuals like this had some real stake or ownership in their labor, or if the global financial world and markets weren't also so rife with their own many fucked up layers of financial manipulation and shenanigans.

In a more equitable world with more financial literacy crypto wouldn't even exist and take off like it has over the last 10-15 years because it would be immediately seen as too risky, as bald-faced gambling over nothing, as metaphorical or proverbial tulip trading and inherently too risky and too volatile.

Oh, and of course, a stupid pyramid scheme with too many extra steps.
posted by loquacious at 10:48 AM on October 13 [8 favorites]

It really is MLM marketing for dudebros except without the scented candles or cleaning products or whatever.

I have a lot of exposure to crypto traders thru work. Seems like 30% of the work force is high frequency trading multiple crypto products and most know any particular coin is inherently worthless but they try to buy cheap and get out before it drops like a stone. IE: taking advantage of a pump and dump, often multiple waves. It's all bets on where things are going to go and when. Bets based on belief that they are more skilled at playing the system than all the other gamblers. Yet they also have a belief crypto isn't an at best zero sum game and that overall crypto is creating wealth.

Also like gamblers they talk up the wins and minimize the losses. Those wins are very seductive. Turning 10 grand into 20 is remembered where loosing 10 over the course of months fades.
posted by Mitheral at 1:43 PM on October 13 [2 favorites]

I've forgotten the details, but either FTX or Binance once forgot to turn off their wash trading bot when they halted trading of one of their tokens, so it continued increasing in some perfect stair step. lol
posted by jeffburdges at 3:04 PM on October 14 [1 favorite]

the big crypto donors seem to be strongly biasing their donations towards Republican candidates.

Game recognizes Game. There is no bigger long-con in history than Donald Trump telling people he's going to "make America great again" while selling all the Trump and maga-branded merch he can. I've started thinking of people who identify as maga as victims. And like victims of any con-man, they suffer from cognitive dissonance, the sunk-cost fallacy, and the risk of embarrassment when people discover what suckers and fools they have been.
posted by mikelieman at 3:32 PM on October 14 [1 favorite]