11 ms·

SEC Files Fraud Charges in Bitcoin and Office Space Investment Schemes

119 points by mikehotel 9y ago

LAMike 9y ago
One of many SEC rulings to come for the crypto space.
- bookmarkacc 9y ago
  Seems less related to crypto and more related to good old scamming. The only thing crypto is the company pitch which is not where the SEC had a problem.
  - pmorici 9y ago
    Right, for those that didn't read closely the only thing this appears to have to do with Bitcoin is that the scammer used the word "Bitcoin" in the names of one of the fraudulent investments he was pitching to people. He wasn't actually using Bitcoin or any other crypto currency in his scheme. He was using traditional banks.
  - rch 9y ago
    I'd change the title to 'SEC Files Fraud Charges Against Renwick Haddow'.
    - deweller 9y ago
      The SEC is clearly trying to send a message that is watching the crypto space by titling the press release as such.
      - Frogolocalypse 9y ago
        The only thing related to crypto was the use of a crypto name.
  - mikehotel 9y ago
    Yes, it appears the bulk of the fraud was in the shared work space scheme. Criminal charges [1] also mention another company that was used to solicit investment: InCrowd Equity Inc. [1] https://www.justice.gov/usao-sdny/pr/charges-unsealed-against-british-citizen-defrauding-investors-more-36-million https://www.justice.gov/usao-sdny/pr/charges-unsealed-agains...
  - nugget 9y ago
    The SEC themselves chose the subtitle of "SEC Files Fraud Charges in Bitcoin and Office Space Investment Schemes". Prosecution can be a very political process as prosecutors often have political ambitions and want to be seen in the press. My takeaway from this press release is that at least one prosecution desk within the SEC has refocused on crypto as a means to do that.
- c3534l 9y ago
  I had to go through all the SEC filings for the past few years recently and I really didn't see a lot about cryptocurrencies. I saw a lot about insider trading and outright fraud, and very few cases which were borderline. In fact, all the charges were so obvious that I looked up to see if anyone academic had made an estimate about what percent of cases the SEC actually goes forwards with, and it's probably less than 1%. > offering materials presented to investors in both companies touted the backgrounds of senior executives who do not appear to exist That's a pretty big deal. That implies this is a fly-by-night operation where you give the appearance of being a business, then run off with the money. You can't just make up people involved in your company. > The materials also misrepresented other key facts about both companies' operations. When I wrote my paper on NJ's underfunded state pensions, they used similar language to describe what turned out to be "pulled millions of dollars out of thin air every year and told bond investors that imaginary money was put into the pension." > Haddow allegedly diverted more than 80 percent of the in funds raised by the broker-dealer for the Bitcoin Store Read: embezzlement > and sent more than $4 million from the Bar Works bank accounts to one or more accounts in Mauritius and $1 million to one or more accounts in Morocco. Read: tax evasion. > had generated several million dollars in gross sales So they basically presented made-up financial statements or at least stats you would get from it and gave that to investors. > sold leases for more workspaces than actually existed Come on, they're not even trying. > [claimed] within months of opening and that Bar Works had engaged an auditor The whole point of an auditor is that they verify claims like these. If the SEC let people falsely claim they've been audited, there'd be no point in having auditors in the first place. Auditors do the vast majority of the work that the SEC doesn't do. The SEC doesn't individually verify that each corporation has and is worth what they say they are, auditors do that.
  - deleted 9y ago
    [deleted]
sillysaurus3 9y ago
This is unrelated to the article, but I'm interested to hear thoughts on this: As bitcoin becomes more valuable and ransomware / money laundering becomes more prevalent, why not blacklist coins that have been through a mixer? If you can't mix the coins, you can't launder them. It won't be possible to use Bitcoin for these activities anymore. Here's what I mean by "blacklist": If an exchange detects that your account has received more than N bitcoins that have been through a mixer, your account is closed and your coins are refunded. It's easy to check whether a coin has been through e.g. bitcoinfog, for example, so this is easy to implement. I think a lot of the resistance to this idea comes from people who use Silk Road clones, most of which force you to use a mixer. And while there's a strong ethical argument to be made that Silk Road ought to exist and that it's made the world safer, there are other types of activities that have been growing with concerning frequency in the Bitcoin world. The sole reason that Bitcoin is untraceable is because of mixers. Is it time to eliminate them? What are some consequences of pursuing this strategy? There's nothing stopping it from happening. As soon as a few exchanges become so large that they're the "gatekeepers" for BTC -> USD conversion, it will be difficult to get dollars out. And if other countries follow suit for euros and yen, then mixed Bitcoins won't be worth much. As far as I can tell, this is a very real possibility for the future, so if it has consequences then we should discuss them now. The era of "pay for everything in bitcoin" is sufficiently far away that we should probably talk about the implications of banning mixed coins. EDIT: Ok, I've exhausted my self-control for complaining about downvotes. This is a genuine, good-faith question that I spent time crafting. If you don't come to HN to have your preconceptions challenged, then what are we doing here? And no, people can't troll others by sending them mixed coins. It's no different than the fraud detection that exists today. You'd need tens of thousands of USD to even put a dent in a business account, for example, and exchanges will just forgive it. I think people don't like the future I've painted, and hence the downvotes. It doesn't bother me much, but it's an interesting phenomenon to see unfold.
- MichaelGG 9y ago
  Buy Monero or zCash, etc. with BTC? What defines a mixer? Etc. etc. Also, then you no longer have a nice transaction system and have to add middleware on every tx to make sure you're not getting "bad" coins. It's a mess, plus it hurts liberty and basically destroys the entire point of BTC.
binarymax 9y ago
I don't get it. The alleged Haddow is intelligent and capable enough to raise 37 million, yet chooses to do it illegally? Why not just use your talents and be legit? Human behavior baffles me sometimes.
- chc 9y ago
  I don't know why you assume those tasks are similar in difficulty. In general, if you don't factor in the chance of getting caught, it's easier to make money with a an illegal scheme than a legal one. Nobody would break the law if it weren't so.
  - omarchowdhury 9y ago
    I don't know why you assume those tasks are dissimilar in difficulty. Have you tried both?
  - binarymax 9y ago
    I can't reply to all comments, so since you posted first I'm replying here... It's a minor thing to learn a criminal skill that lets you con your way into a couple thousand dollars. The combination of knowledge, connections, moxie, and motivation to raise an ill gotten 37 million dollars are another thing entirely. Not anyone can just say "oh sure I'll lie my way to 37 million". Given the skills, time, and dedication it must have taken to get this far by a person with these talents, could have been used to be reasonably successful in a whole host of careers or ventures. Perhaps not 37 million effective, but enough to live comfortably and happy for sure, without the constant fear of the long arm of the law creeping up behind you at any moment.
- joe_the_user 9y ago
  If you have gold worth a thousand dollars you can walk into a jewelry shop and pawn it for some large fraction of that. If you don't any gold, and walk into a jewelry shop and ask for a thousand dollar loan, they're laugh. If your uncle jack owns the jewelry store, they might lend you money on no credit. If you have some amazing way to fake having a thousand dollars in gold, you can fake jewelry store into loaning you the thousand dollars. But they'll be gunning for you if it becomes clear you've scammed them. If you have a business that's making money and has valuable assets, your chances of getting loans and investment is fairly high. If you have a track record of founding businesses, if you have a good idea and if you have connections, your chances of getting investment, even with no business or a minimal business, can also be pretty good. But this is the skill of faking a real business is somewhat different from the skills of those with a track record of creating multiple real business from scratch. There's similarity, even overlap but they aren't identical.
brianbreslin 9y ago
We had one of the bar works locations here in miami suddenly shut down last week. Few tenants ever signed up, and the staff weren't even informed the place was shutting down.
- aphextron 9y ago
  >We had one of the bar works locations here in miami suddenly shut down last week. Few tenants ever signed up, and the staff weren't even informed the place was shutting down. This is the number one reason I want nothing to do with Bitcoin. The technology is new and amazing and incredibly exciting, but people are awful as ever. The industry is full of shady characters looking to make a buck any way possible. And anything that touches it tends to fall into the same category. I'm certain it will be successful in the long run though. There will always be those willing to take the risk.
  - wslh 9y ago
    > but people are awful as ever. That's true because the barrier of entry is 0 and Bitcoin is basically money but there are other kind of community members that are pushing all these blockchain/cryptocurrency/smart-contracts stuff forward. An ICO can be an scam but also push interesting projects forward in places without good access to capital. We are just living the prehistoric times of the technology. I think exchanges are one of the weakest points of the cryptoeconomy. If they are banned or overly regulated Bitcoin will convert into PayPal in some places. That was my experience with Coinbase and I understand that they are overly regulated. In a way the cryptoeconomy is a good thing for the intelligence community since it transparents what is happening in black markets, even in the Monero and Z.cash shielded cases where at least you can measure some level of activity.
  - celticninja 9y ago
    Stay away from the internet then. I hear it's chock full of Russian hackers.
  - beager 9y ago
    The fact that cryptocurrency keeps showing up alongside scams certainly does not bode well for the legitimacy of cryptocurrency, and by extension it does not bode well for the stability or overall value. One of the biggest flaws with cryptocurrency is that for all its mathematical and structural elegance, it rolls back almost all of the features that mitigate fraudulent human behaviors.
idibidiart 9y ago
ICO is the new IPO. ICOs will ultimately replace IPOs. Bitcoin is the perfect medium for speculative value. LOL. Enough said.
pizza 9y ago
Anybody know if the SEC has looked into last week's Ethereum flash crash?
- pmalynin 9y ago
  Why would they? It's not a "security".
- Frogolocalypse 9y ago
  ? The only thing that flash crash was about was a bunch of unsophisticated investors setting automatic sells in an illiquid market.
Animats 9y ago
Bar Works primarily sold leases coupled with sub-leases that together functioned like investment notes. The company also allegedly sold leases for more workspaces than actually existed in at least two locations. Classic non-Bitcoin type of scam. The SEC sends people to jail for that sort of thing regularly.
- downandout 9y ago
  >The SEC sends people to jail for that sort of thing regularly. Not being pedantic here, just a side note. The SEC actually doesn't have the power to send people to jail. They can only file civil actions. In this case, a parallel (but separate) criminal action was filed by the US Attorney's office, which is the only entity that can bring federal criminal charges. This is an important distinction, because the standard of proof is lower in civil cases, and there are SEC violations that simply aren't criminal in nature. Accordingly, most conduct that draws the ire of the SEC doesn't actually get criminally prosecuted, nor does all such conduct necessarily deserve it. There are many arcane securities laws (some dating back to the 1920's) that are easy to unintentionally violate.
Animats 9y ago
It seems that Renwick Haddow is well known for previous scams.[1][2] [1] http://www.redd-monitor.org/2017/01/17/bar-works-the-return-of-renwick-haddow/ http://www.redd-monitor.org/2017/01/17/bar-works-the-return-... [2] http://www.worldpolicy.org/journal/spring2015/catch-and-release http://www.worldpolicy.org/journal/spring2015/catch-and-rele...
DiMiTri101 9y ago
Monero is the answer to this problem
Frogolocalypse 9y ago
Pretty sure the only relationship that scam had to do with bitcoin is that the name was used in order to bamboozle investors.
EGreg 9y ago
Bitcoin can be easily tracked. If they make the exchanges refuse to accept coins that have been through a mixer / laundered then everything is trivially trackable.  Even dollar bills can in theory be marked and tracked. Each one has its own number, it's just that they aren't registered on a global ledger. The real advantage of bitcoin was that no one can block your payment or confiscate your money. But once it's trackable, they can keep a list of "blacklisted" coins which regulated exchanges will refuse to cash out for things. And which will make it hard to pay for actual stuff (eg expedia via BitPay) with them.
blancoscar234 9y ago
I am Blanc Oscar and i am 64 years old. I has a job were i was paid $5 per hour which required me to work really hard to get a good pay to be able to meet my bills. At this age i had no retirement plan, no insurance and a bad credit. I was in debts.I searched the internet for jobs and later decided t search on investments that i can do with little money. I saw Western Union hack investment, though skeptical, i dived into it because i needed the money badly. I was told to put some amount of money in and after a few days, i would get a huge return. I decided to invest $1,000 which i got as loan from a friend. And amazingly I got $10,000 afterwards from the investment. I am so glad i did do it. I have been able to settle all my debts, and i am able to pay my bills. We have move to Las Vegas me and my family and life is really for s now. Thanks to this group of hackers. The email of the hackers where i invested is guaranteedhackers@gmail.com and their website is https://goo.gl/bxNC1U https://goo.gl/bxNC1U

119 points by mikehotel 9y ago

LAMike 9y ago

One of many SEC rulings to come for the crypto space.

bookmarkacc 9y ago
Seems less related to crypto and more related to good old scamming. The only thing crypto is the company pitch which is not where the SEC had a problem.
- pmorici 9y ago
  Right, for those that didn't read closely the only thing this appears to have to do with Bitcoin is that the scammer used the word "Bitcoin" in the names of one of the fraudulent investments he was pitching to people. He wasn't actually using Bitcoin or any other crypto currency in his scheme. He was using traditional banks.
- rch 9y ago
  I'd change the title to 'SEC Files Fraud Charges Against Renwick Haddow'.
  - deweller 9y ago
    The SEC is clearly trying to send a message that is watching the crypto space by titling the press release as such.
    - Frogolocalypse 9y ago
      The only thing related to crypto was the use of a crypto name.
- mikehotel 9y ago
  Yes, it appears the bulk of the fraud was in the shared work space scheme. Criminal charges [1] also mention another company that was used to solicit investment: InCrowd Equity Inc. [1] https://www.justice.gov/usao-sdny/pr/charges-unsealed-against-british-citizen-defrauding-investors-more-36-million https://www.justice.gov/usao-sdny/pr/charges-unsealed-agains...
- nugget 9y ago
  The SEC themselves chose the subtitle of "SEC Files Fraud Charges in Bitcoin and Office Space Investment Schemes". Prosecution can be a very political process as prosecutors often have political ambitions and want to be seen in the press. My takeaway from this press release is that at least one prosecution desk within the SEC has refocused on crypto as a means to do that.
c3534l 9y ago
I had to go through all the SEC filings for the past few years recently and I really didn't see a lot about cryptocurrencies. I saw a lot about insider trading and outright fraud, and very few cases which were borderline. In fact, all the charges were so obvious that I looked up to see if anyone academic had made an estimate about what percent of cases the SEC actually goes forwards with, and it's probably less than 1%. > offering materials presented to investors in both companies touted the backgrounds of senior executives who do not appear to exist That's a pretty big deal. That implies this is a fly-by-night operation where you give the appearance of being a business, then run off with the money. You can't just make up people involved in your company. > The materials also misrepresented other key facts about both companies' operations. When I wrote my paper on NJ's underfunded state pensions, they used similar language to describe what turned out to be "pulled millions of dollars out of thin air every year and told bond investors that imaginary money was put into the pension." > Haddow allegedly diverted more than 80 percent of the in funds raised by the broker-dealer for the Bitcoin Store Read: embezzlement > and sent more than $4 million from the Bar Works bank accounts to one or more accounts in Mauritius and $1 million to one or more accounts in Morocco. Read: tax evasion. > had generated several million dollars in gross sales So they basically presented made-up financial statements or at least stats you would get from it and gave that to investors. > sold leases for more workspaces than actually existed Come on, they're not even trying. > [claimed] within months of opening and that Bar Works had engaged an auditor The whole point of an auditor is that they verify claims like these. If the SEC let people falsely claim they've been audited, there'd be no point in having auditors in the first place. Auditors do the vast majority of the work that the SEC doesn't do. The SEC doesn't individually verify that each corporation has and is worth what they say they are, auditors do that.
- deleted 9y ago
  [deleted]

sillysaurus3 9y ago

This is unrelated to the article, but I'm interested to hear thoughts on this: As bitcoin becomes more valuable and ransomware / money laundering becomes more prevalent, why not blacklist coins that have been through a mixer? If you can't mix the coins, you can't launder them. It won't be possible to use Bitcoin for these activities anymore. Here's what I mean by "blacklist": If an exchange detects that your account has received more than N bitcoins that have been through a mixer, your account is closed and your coins are refunded. It's easy to check whether a coin has been through e.g. bitcoinfog, for example, so this is easy to implement. I think a lot of the resistance to this idea comes from people who use Silk Road clones, most of which force you to use a mixer. And while there's a strong ethical argument to be made that Silk Road ought to exist and that it's made the world safer, there are other types of activities that have been growing with concerning frequency in the Bitcoin world. The sole reason that Bitcoin is untraceable is because of mixers. Is it time to eliminate them? What are some consequences of pursuing this strategy? There's nothing stopping it from happening. As soon as a few exchanges become so large that they're the "gatekeepers" for BTC -> USD conversion, it will be difficult to get dollars out. And if other countries follow suit for euros and yen, then mixed Bitcoins won't be worth much. As far as I can tell, this is a very real possibility for the future, so if it has consequences then we should discuss them now. The era of "pay for everything in bitcoin" is sufficiently far away that we should probably talk about the implications of banning mixed coins. EDIT: Ok, I've exhausted my self-control for complaining about downvotes. This is a genuine, good-faith question that I spent time crafting. If you don't come to HN to have your preconceptions challenged, then what are we doing here? And no, people can't troll others by sending them mixed coins. It's no different than the fraud detection that exists today. You'd need tens of thousands of USD to even put a dent in a business account, for example, and exchanges will just forgive it. I think people don't like the future I've painted, and hence the downvotes. It doesn't bother me much, but it's an interesting phenomenon to see unfold.

MichaelGG 9y ago
Buy Monero or zCash, etc. with BTC? What defines a mixer? Etc. etc. Also, then you no longer have a nice transaction system and have to add middleware on every tx to make sure you're not getting "bad" coins. It's a mess, plus it hurts liberty and basically destroys the entire point of BTC.

binarymax 9y ago

I don't get it. The alleged Haddow is intelligent and capable enough to raise 37 million, yet chooses to do it illegally? Why not just use your talents and be legit? Human behavior baffles me sometimes.

chc 9y ago
I don't know why you assume those tasks are similar in difficulty. In general, if you don't factor in the chance of getting caught, it's easier to make money with a an illegal scheme than a legal one. Nobody would break the law if it weren't so.
- omarchowdhury 9y ago
  I don't know why you assume those tasks are dissimilar in difficulty. Have you tried both?
- binarymax 9y ago
  I can't reply to all comments, so since you posted first I'm replying here... It's a minor thing to learn a criminal skill that lets you con your way into a couple thousand dollars. The combination of knowledge, connections, moxie, and motivation to raise an ill gotten 37 million dollars are another thing entirely. Not anyone can just say "oh sure I'll lie my way to 37 million". Given the skills, time, and dedication it must have taken to get this far by a person with these talents, could have been used to be reasonably successful in a whole host of careers or ventures. Perhaps not 37 million effective, but enough to live comfortably and happy for sure, without the constant fear of the long arm of the law creeping up behind you at any moment.
joe_the_user 9y ago
If you have gold worth a thousand dollars you can walk into a jewelry shop and pawn it for some large fraction of that. If you don't any gold, and walk into a jewelry shop and ask for a thousand dollar loan, they're laugh. If your uncle jack owns the jewelry store, they might lend you money on no credit. If you have some amazing way to fake having a thousand dollars in gold, you can fake jewelry store into loaning you the thousand dollars. But they'll be gunning for you if it becomes clear you've scammed them. If you have a business that's making money and has valuable assets, your chances of getting loans and investment is fairly high. If you have a track record of founding businesses, if you have a good idea and if you have connections, your chances of getting investment, even with no business or a minimal business, can also be pretty good. But this is the skill of faking a real business is somewhat different from the skills of those with a track record of creating multiple real business from scratch. There's similarity, even overlap but they aren't identical.

brianbreslin 9y ago

We had one of the bar works locations here in miami suddenly shut down last week. Few tenants ever signed up, and the staff weren't even informed the place was shutting down.

aphextron 9y ago
>We had one of the bar works locations here in miami suddenly shut down last week. Few tenants ever signed up, and the staff weren't even informed the place was shutting down. This is the number one reason I want nothing to do with Bitcoin. The technology is new and amazing and incredibly exciting, but people are awful as ever. The industry is full of shady characters looking to make a buck any way possible. And anything that touches it tends to fall into the same category. I'm certain it will be successful in the long run though. There will always be those willing to take the risk.
- wslh 9y ago
  > but people are awful as ever. That's true because the barrier of entry is 0 and Bitcoin is basically money but there are other kind of community members that are pushing all these blockchain/cryptocurrency/smart-contracts stuff forward. An ICO can be an scam but also push interesting projects forward in places without good access to capital. We are just living the prehistoric times of the technology. I think exchanges are one of the weakest points of the cryptoeconomy. If they are banned or overly regulated Bitcoin will convert into PayPal in some places. That was my experience with Coinbase and I understand that they are overly regulated. In a way the cryptoeconomy is a good thing for the intelligence community since it transparents what is happening in black markets, even in the Monero and Z.cash shielded cases where at least you can measure some level of activity.
- celticninja 9y ago
  Stay away from the internet then. I hear it's chock full of Russian hackers.
- beager 9y ago
  The fact that cryptocurrency keeps showing up alongside scams certainly does not bode well for the legitimacy of cryptocurrency, and by extension it does not bode well for the stability or overall value. One of the biggest flaws with cryptocurrency is that for all its mathematical and structural elegance, it rolls back almost all of the features that mitigate fraudulent human behaviors.

idibidiart 9y ago

ICO is the new IPO. ICOs will ultimately replace IPOs. Bitcoin is the perfect medium for speculative value. LOL. Enough said.

pizza 9y ago

Anybody know if the SEC has looked into last week's Ethereum flash crash?

pmalynin 9y ago
Why would they? It's not a "security".
Frogolocalypse 9y ago
? The only thing that flash crash was about was a bunch of unsophisticated investors setting automatic sells in an illiquid market.

Animats 9y ago

Bar Works primarily sold leases coupled with sub-leases that together functioned like investment notes. The company also allegedly sold leases for more workspaces than actually existed in at least two locations. Classic non-Bitcoin type of scam. The SEC sends people to jail for that sort of thing regularly.

downandout 9y ago
>The SEC sends people to jail for that sort of thing regularly. Not being pedantic here, just a side note. The SEC actually doesn't have the power to send people to jail. They can only file civil actions. In this case, a parallel (but separate) criminal action was filed by the US Attorney's office, which is the only entity that can bring federal criminal charges. This is an important distinction, because the standard of proof is lower in civil cases, and there are SEC violations that simply aren't criminal in nature. Accordingly, most conduct that draws the ire of the SEC doesn't actually get criminally prosecuted, nor does all such conduct necessarily deserve it. There are many arcane securities laws (some dating back to the 1920's) that are easy to unintentionally violate.

Animats 9y ago

It seems that Renwick Haddow is well known for previous scams.[1][2] [1] http://www.redd-monitor.org/2017/01/17/bar-works-the-return-of-renwick-haddow/ http://www.redd-monitor.org/2017/01/17/bar-works-the-return-... [2] http://www.worldpolicy.org/journal/spring2015/catch-and-release http://www.worldpolicy.org/journal/spring2015/catch-and-rele...

DiMiTri101 9y ago

Monero is the answer to this problem

Frogolocalypse 9y ago

Pretty sure the only relationship that scam had to do with bitcoin is that the name was used in order to bamboozle investors.

EGreg 9y ago

Bitcoin can be easily tracked. If they make the exchanges refuse to accept coins that have been through a mixer / laundered then everything is trivially trackable.  Even dollar bills can in theory be marked and tracked. Each one has its own number, it's just that they aren't registered on a global ledger. The real advantage of bitcoin was that no one can block your payment or confiscate your money. But once it's trackable, they can keep a list of "blacklisted" coins which regulated exchanges will refuse to cash out for things. And which will make it hard to pay for actual stuff (eg expedia via BitPay) with them.

blancoscar234 9y ago

I am Blanc Oscar and i am 64 years old. I has a job were i was paid $5 per hour which required me to work really hard to get a good pay to be able to meet my bills. At this age i had no retirement plan, no insurance and a bad credit. I was in debts.I searched the internet for jobs and later decided t search on investments that i can do with little money. I saw Western Union hack investment, though skeptical, i dived into it because i needed the money badly. I was told to put some amount of money in and after a few days, i would get a huge return. I decided to invest $1,000 which i got as loan from a friend. And amazingly I got $10,000 afterwards from the investment. I am so glad i did do it. I have been able to settle all my debts, and i am able to pay my bills. We have move to Las Vegas me and my family and life is really for s now. Thanks to this group of hackers. The email of the hackers where i invested is guaranteedhackers@gmail.com and their website is https://goo.gl/bxNC1U https://goo.gl/bxNC1U