"Pirateat40" Makes Off $5.6M USD in BitCoins From Pyramid Scheme
August 28, 2012 4:11 PM
Bitcoin investors fall for classic Ponzi ploy
everyone's favorite quasi-legal internet currency
, are still lingering around thanks to strong support from the hacker, future, and technopunk communities. Prices remain
off their record highs
, but at $10.97 USD per Bitcoin at last count [
], the currency has legitimate value.
The first rule of Bitcoins is to guard your digital treasure wisely. After all, the currency is denationalized, and has no central governmental regulators (though
blatant fraud attempts are combatted
by the community). Bitcoins
are oft stolen
from those who don't strongly encrypt their wallets. Thus most experienced Bitcoin users exercise a healthy degree of caution when storing and spending their hard-earned digital cash.
That makes the strange and sordid
Bitcoin Savings & Trust
and its originator "pirate40" all the odder.
Apparently, a number of Bitcoin users were lured to invest their Bitcoins in this digital hedge fund, which promised lucrative payouts. But like many things too good to be true, it probably was -- BS&T is being billed as a "pyramid scheme" and reportedly pirateat40 has pulled a Bernie Madoff and made off with 500K worth of Bitcoins ($5.49M USD).
Last week pirateat40 sought to assuage concerned investors, writing, "Once my process is released you'll understand more of how coins move around."
But this week pirateat40
a vague sort of explanation that sounds kind of like an admission that the fund was pyramidal in structure:
The decision was based on the general size and overall time required to manage the transactions. As the fund grew there were larger and larger coin movements which put strain on my reserve accounts and ultimately caused delays on withdraws and the inability to fund orders within my system. On the 14th I made a final attempt to relieve pressure off the system by reducing the rates I offered for deposits. In a perfect world this would allow me to hold more coins in reserve outside the system, but instead it only exponentially increased the amount of withdrawals overnight causing mass panic from many of my lenders.
Pirateat40 has been locking down his threads regarding repayment.
The fund's chat room has an away message from the boss commenting "When I know, you will."
Upset investors are flocking to Bitcoin boards
a common tune -- "WHERE ARE MY BITCOINS?"
Initially BS&T claimed the 'coins would arrive with interest in just a week. Now it comments that there is "no ETA on payments." While there are many losers in the scheme, some investors who got out in time actually gained; after all, like most Ponzi schemes BS&T initially attracted attention by paying out large amounts of interest to early adopters before reaching critical mass and imploding.
There's no telling if the foolish investors will recoup anything. [Image Source: Shapeways]
Some duped investors have taken to trying to hunt down the pesky pirateat40. There
that he is based in Texas. But short of extracting some good old fashioned (and wholly illegal) vigilante justice, it's unclear what the scammed can do. Bitcoin Ponzi schemes are growing more frequent --
one lawsuit in California
[Scribd] has already taken up the issue. But it remains to be seen how seriously the courts will take the cyber-currency, given that it's founded on a rather anti-nation premise.
And of course, the onus for these losses largely rests on those who sent someone named "pirateat40" actual money, and failing to recognize the classic signs of a Ponzi scheme -- inflated interest rates, shadowy management, and unrealistic promises.
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