28 ms·

SEC Charges 1inMM Capital, LLC with Operating a $690M Ponzi Scheme

134 points by prostoalex 6y ago

anm89 6y ago
It's a shame that the word Ponzi scheme is so abused that when I see something labled a Ponzi scheme my expectation is that it is not actually a Ponzi scheme. Where as this is a real Ponzi scheme. The business was totally made up, and it was a front to get investor money to cycle to other investors: >in fact, neither Horwitz nor 1inMM had ever sold any movie rights to, or done any business with, HBO or Netflix. Crazy that people think they can get away with this stuff. Ponzi schemes seem guaranteed to blow up over a long enough time horizon.
- jandrese 6y ago
  Several Ponzi schemes have started out with legitimate though niche investments that provided a good rate of return. It just became untenable when too many people poured into the market and the perpetrator didn't have the courage to say no and decided instead to start lying to investors to keep the gravy train flowing.
- bigtones 6y ago
  1inMM also used contributions from new investors to pay out to older investors in this scheme as well, which is one of the hallmarks of a true Ponzi scheme.
  - weird-eye-issue 6y ago
    That is what he said already. "it was a front to get investor money to cycle to other investors"
- nicklecompte 6y ago
  Not a response to you specifically, more of a comment on the reliability of sources: causal media (such as Twitter, blogs, HN comments) might misuse the term “Ponzi scheme,” but sec.gov sure doesn’t.
- paxys 6y ago
  For every Ponzi scheme that blows up and is all over the news, there are dozens more that are able to fly under the radar long enough for the perpetrators to disappear. There is a lot of get-rich-quick style fraud out there and very few government resources to tackle all of it. The trick to running a successful Ponzi scheme is really to make sure to not get big enough for the real authorities (like SEC) to care. Grandma complaining to the police that a local swindler cheated her out of a couple hundred bucks is going to be met with a shrug.
  - anm89 6y ago
    Makes sense
  - RotaryTelephone 6y ago
    [takes notes]
  - deleted 6y ago
    [deleted]
  - microtherion 6y ago
    The other method is to make your scheme complex enough to overwhelm the limited budgets of these authorities. Selling nonexistent film rights is amateur stuff. If instead he had sold NFTs to nonexistent film rights, he'd be shopping for a bunch of new Lambos right now.
- antasvara 6y ago
  It is crazy, but I've always wondered how many Ponzi schemes are currently going on. Given that this one was just caught despite being founded in 2012, it stands to reason that there are still some out there currently working that haven't been caught.
- vsareto 6y ago
  They usually think they can get out before it blows since they're holding the cards.
- stealthy123 6y ago
  The word is not abused per se. A ponzi scheme can be polymorphic and stealth. For an example, appearance of human looked different in stone age and now. Yet human is a human so is ponzi. I'm a former fraudster by the way!
- Bukhmanizer 6y ago
  > Crazy that people think they can get away with this stuff. Ponzi schemes seem guaranteed to blow up over a long enough time horizon. I just finished a podcast on Madoff, and I found myself wondering if he just assumed he would eventually get caught. The man lived like a literal king for like 40 years, and only got caught in his 70’s. It’s not a tradeoff that I would take, but I wonder if for some people, prison is the assumed endgame, and the goal is to keep the plates spinning for as long as possible.
- mherdeg 6y ago
  Ponzi schemes can operate in the open for a pretty long time. As of late 2007 it was pretty clear that Agape World Inc. was a classic Ponzi scheme (see FatWallet forum thread full of promoters and onlookers patiently explaining the scam at https://web.archive.org/web/20080503040727/http://www.fatwallet.com/forums/finance/780511/ https://web.archive.org/web/20080503040727/http://www.fatwal... ). They claimed to offer "commercial bridge loans", which to a limited extent they actually did, though they were mostly paying investors other investors' money. They operated apparently with impunity throughout 2008 and the arrest wasn't until Jan 2009, with years of further criminal charges helping unravel the scam ( e.g. https://archives.fbi.gov/archives/newyork/press-releases/2011/former-agape-world-inc.-owner-and-president-sentenced-to-25-years-imprisonment-for-multi-million-dollar-ponzi-scheme https://archives.fbi.gov/archives/newyork/press-releases/201... , https://www.justice.gov/usao-edny/pr/largest-grossing-broker-agape-ponzi-scheme-sentenced-108-months-imprisonment https://www.justice.gov/usao-edny/pr/largest-grossing-broker... ). It was just fascinating to spend all of 2008 reading that forum thread being vividly suspicious that folks were being scammed in broad daylight for a year.
  - rspeele 6y ago
    Wow, thanks for that glimpse into the past. Really fascinating how it always sounds the same "if it's a scam how come I've been making money" and "they've been doing this for 9 years so if it was a scam it would've collapsed by now". Until the wheels come off, nobody can talk the shills out of it. Or even tell whether they believe what they're saying or just trying to lure others in.
  - anm89 6y ago
    A couple years isn't a very impressive track record IMO.
throwkeep 6y ago
It amazes me that in the year 2021 there are still Ponzi schemes being pulled off like this.
- duxup 6y ago
  The fact that they happen seems rooted in human nature. I'm not sure of anything that will stop that.
- huitzitziltzin 6y ago
  Expect to continue being amazed in 2041 when they still work and in exactly the same way.
  - smachiz 6y ago
    There's a sucker born every minute.
    - TedDoesntTalk 6y ago
      Not all of these people are suckers. Some are in neurological decline due to age (not necessarily dementia). Point is, don't always criticize the victim. Sure, there are some victims who should have known better. But not all.
      - jmcqk6 6y ago
        Whether a person should have known better or not doesn't change the fact that these bad people shouldn't be doing these bad things. I don't know why or how it got fashionable to dismiss someone having something terrible done to them by saying "they should have known better" but every single time it's bullshit. I have a feeling it's a thought terminating cliche to help out of the state where you know something terrible happened to this person, and there is nothing you can do about it.
        TedDoesntTalk 6y ago
JumpCrisscross 6y ago
> Horwitz misappropriated investor funds for his personal use, including the purchase of his multi-million dollar home, trips to Las Vegas, and to pay a celebrity interior designer. I don't understand this behavior. Did he not know he was committing fraud? Did he think he would never get caught?
- fractionalhare 6y ago
  Presumably he thought he'd get away with it, yeah. Or just enjoyed his money while he had it and lived with the dissonance.
  - chefkoch 6y ago
    Once it gets too big the chance to get away with it gets really slim. If you steal some millions you can dissapear and If you aren't too stupid no one will find you and after a while everyone will forget you. But with hundreds of millions you won't bei forgotten and the agencies will put enough manpower in finding you.
    - deleted 6y ago
      [deleted]
    - datavirtue 6y ago
      Yeah, it seems the key is in exploiting the lack of law enforcement resources. I read an article yesterday about Canadian doctors trafficking fentanyl patches. The,now retired, agent who busted a small ring said he could have gotten 1000 doctors if he had the resources. He also mentioned the courts would not back him up on a large bust either. If he brought them 100 doctors he said they would tell him to pick the worst seven.
- chefkoch 6y ago
  Bernie Madoff did the same, i think you just have to ignore that you're gonna get caught.
- anm89 6y ago
EMM_386 6y ago
> The complaint alleges that Horwitz and 1inMM promised investors returns in excess of 35% If someone offers you a 35% return and they aren't the Renaissance Medallion Fund, you should probably do your due diligence. https://en.wikipedia.org/wiki/Renaissance_Technologies#Medallion_Fund https://en.wikipedia.org/wiki/Renaissance_Technologies#Medal...
- hinkley 6y ago
  If one vendor is offering a solution that vastly exceeds the expectation of all other vendors, current and former, you should ask a lot of questions. Either they're full of shit, or you're about to learn about some new breakthrough that everyone will be using in the future (unfortunately some of the former will claim to be the latter).
- deleted 6y ago
  [deleted]
- Exuma 6y ago
  Wow thats fascinating. So there's no way in I imagine... are their trades public?
  - deleted 6y ago
    [deleted]
  - bussierem 6y ago
    >The Medallion fund is considered to be one of the most successful hedge funds ever. It has averaged a 71.8% annual return, before fees, from 1994 through mid-2014.[33] The fund has been closed to outside investors since 1993[34] and is available only to current and past employees and their families.
    - noname123 6y ago
      This number has been cited often. This is not to be skeptical rather to crunch the claim: Suppose Rentech started with $50M AUM in 1994 (reasonable assumption for a small hedge fund); 50M * (1.718)^20 = 2.51 Trillion in 2014. What am I missing here?
ourcat 6y ago
I wonder how many people unwittingly confused him with Ben Horowitz.
- djrogers 6y ago
  None. This guy played off his Hollywood contacts, friends, and lifestyle, and his pitch had nothing to do with VC, The Valley, or anything related to Ben Horowitz.
deleted 6y ago
[deleted]
opendomain 6y ago
I see a lot of people here wondering how anyone could be taken in by Ponzi schema. However, a lot of the same people are "investing" in BitCoin - where the most recent rise in price may be due to a foreign company that mints new money out of thin air. To be clear: I am NOT BitCoin is a ponzi schema. Some other alt coins definately smell like it - especially if they are created without doing ANY kind of work.
- xwolfi 6y ago
  Dude I've seen people who absolutely understand that it's a ponzi, and jump in it to screw the greater fools by being themselves the greater fool of others. Most people join ponzis knowingly trying to make an impossible buck on the back of the next guy. I can understand poor communities exploited by MLM companies, maybe (but who thinks money comes from selling idiotic products to your friends, really?), but ponzi victims losing all their saving when it falls should consider: - why put so much in non mainstream vehicles (cash, real estate, your company's stock) - if non insured by the government, it's always a possibility to lose it all, it can't be such a surprise. Even a nice house can lose all its value due to a construction nearby
  - LatteLazy 6y ago
    It's only a bad idea to be in the last traunch of joiners. See also GME.
- lamontcg 6y ago
  Bitcoin and all of crypto, in its entirety, is a Ponzi. It is backed by the same USD that Bitcoin fans claim is worthless, yet they price it in USD and extract USD from it to buy things. Eventually one day the USD supplies will get dangerously low and there will be a systemic bank run and it will collapse. It came dangerously close in 2018. The tide will eventually go out again. Two economic laws of gravity: wildcat banking systems always fail, and it is never different this time.
  - earthtolazlo 6y ago
TrackerFF 6y ago
A lot of these "crypto" schemes (OneCoin etc.) operate all over the world, but cater heavily to people in third-world countries. They go on "roadshows" with their cronies, and hold glitzy conferences for people out in the boonies.
JakeAl 6y ago
The other side. https://www.youtube.com/watch?v=NsViVc2-3Jo https://www.youtube.com/watch?v=NsViVc2-3Jo
jonnybgood 6y ago
In related news, Gina Champion-Cain was sentenced to 15 years for a ponzi scheme involving $350mil. https://www.justice.gov/usao-sdca/pr/san-diego-business-leader-gina-champion-cain-sentenced-15-years-massive-ponzi-scheme https://www.justice.gov/usao-sdca/pr/san-diego-business-lead...

134 points by prostoalex 6y ago

It's a shame that the word Ponzi scheme is so abused that when I see something labled a Ponzi scheme my expectation is that it is not actually a Ponzi scheme. Where as this is a real Ponzi scheme. The business was totally made up, and it was a front to get investor money to cycle to other investors: >in fact, neither Horwitz nor 1inMM had ever sold any movie rights to, or done any business with, HBO or Netflix. Crazy that people think they can get away with this stuff. Ponzi schemes seem guaranteed to blow up over a long enough time horizon.

jandrese 6y ago
Several Ponzi schemes have started out with legitimate though niche investments that provided a good rate of return. It just became untenable when too many people poured into the market and the perpetrator didn't have the courage to say no and decided instead to start lying to investors to keep the gravy train flowing.
bigtones 6y ago
1inMM also used contributions from new investors to pay out to older investors in this scheme as well, which is one of the hallmarks of a true Ponzi scheme.
- weird-eye-issue 6y ago
  That is what he said already. "it was a front to get investor money to cycle to other investors"
nicklecompte 6y ago
Not a response to you specifically, more of a comment on the reliability of sources: causal media (such as Twitter, blogs, HN comments) might misuse the term “Ponzi scheme,” but sec.gov sure doesn’t.
paxys 6y ago
For every Ponzi scheme that blows up and is all over the news, there are dozens more that are able to fly under the radar long enough for the perpetrators to disappear. There is a lot of get-rich-quick style fraud out there and very few government resources to tackle all of it. The trick to running a successful Ponzi scheme is really to make sure to not get big enough for the real authorities (like SEC) to care. Grandma complaining to the police that a local swindler cheated her out of a couple hundred bucks is going to be met with a shrug.
- anm89 6y ago
  Makes sense
- RotaryTelephone 6y ago
  [takes notes]
- deleted 6y ago
  [deleted]
- microtherion 6y ago
  The other method is to make your scheme complex enough to overwhelm the limited budgets of these authorities. Selling nonexistent film rights is amateur stuff. If instead he had sold NFTs to nonexistent film rights, he'd be shopping for a bunch of new Lambos right now.
antasvara 6y ago
It is crazy, but I've always wondered how many Ponzi schemes are currently going on. Given that this one was just caught despite being founded in 2012, it stands to reason that there are still some out there currently working that haven't been caught.
vsareto 6y ago
They usually think they can get out before it blows since they're holding the cards.
stealthy123 6y ago
The word is not abused per se. A ponzi scheme can be polymorphic and stealth. For an example, appearance of human looked different in stone age and now. Yet human is a human so is ponzi. I'm a former fraudster by the way!
Bukhmanizer 6y ago
> Crazy that people think they can get away with this stuff. Ponzi schemes seem guaranteed to blow up over a long enough time horizon. I just finished a podcast on Madoff, and I found myself wondering if he just assumed he would eventually get caught. The man lived like a literal king for like 40 years, and only got caught in his 70’s. It’s not a tradeoff that I would take, but I wonder if for some people, prison is the assumed endgame, and the goal is to keep the plates spinning for as long as possible.
mherdeg 6y ago
Ponzi schemes can operate in the open for a pretty long time. As of late 2007 it was pretty clear that Agape World Inc. was a classic Ponzi scheme (see FatWallet forum thread full of promoters and onlookers patiently explaining the scam at https://web.archive.org/web/20080503040727/http://www.fatwallet.com/forums/finance/780511/ https://web.archive.org/web/20080503040727/http://www.fatwal... ). They claimed to offer "commercial bridge loans", which to a limited extent they actually did, though they were mostly paying investors other investors' money. They operated apparently with impunity throughout 2008 and the arrest wasn't until Jan 2009, with years of further criminal charges helping unravel the scam ( e.g. https://archives.fbi.gov/archives/newyork/press-releases/2011/former-agape-world-inc.-owner-and-president-sentenced-to-25-years-imprisonment-for-multi-million-dollar-ponzi-scheme https://archives.fbi.gov/archives/newyork/press-releases/201... , https://www.justice.gov/usao-edny/pr/largest-grossing-broker-agape-ponzi-scheme-sentenced-108-months-imprisonment https://www.justice.gov/usao-edny/pr/largest-grossing-broker... ). It was just fascinating to spend all of 2008 reading that forum thread being vividly suspicious that folks were being scammed in broad daylight for a year.
- rspeele 6y ago
  Wow, thanks for that glimpse into the past. Really fascinating how it always sounds the same "if it's a scam how come I've been making money" and "they've been doing this for 9 years so if it was a scam it would've collapsed by now". Until the wheels come off, nobody can talk the shills out of it. Or even tell whether they believe what they're saying or just trying to lure others in.
- anm89 6y ago
  A couple years isn't a very impressive track record IMO.

throwkeep 6y ago

It amazes me that in the year 2021 there are still Ponzi schemes being pulled off like this.

duxup 6y ago
The fact that they happen seems rooted in human nature. I'm not sure of anything that will stop that.
huitzitziltzin 6y ago
Expect to continue being amazed in 2041 when they still work and in exactly the same way.
- smachiz 6y ago
  There's a sucker born every minute.
  - TedDoesntTalk 6y ago
    Not all of these people are suckers. Some are in neurological decline due to age (not necessarily dementia). Point is, don't always criticize the victim. Sure, there are some victims who should have known better. But not all.
    - jmcqk6 6y ago
      Whether a person should have known better or not doesn't change the fact that these bad people shouldn't be doing these bad things. I don't know why or how it got fashionable to dismiss someone having something terrible done to them by saying "they should have known better" but every single time it's bullshit. I have a feeling it's a thought terminating cliche to help out of the state where you know something terrible happened to this person, and there is nothing you can do about it.
      - TedDoesntTalk 6y ago

JumpCrisscross 6y ago

> Horwitz misappropriated investor funds for his personal use, including the purchase of his multi-million dollar home, trips to Las Vegas, and to pay a celebrity interior designer. I don't understand this behavior. Did he not know he was committing fraud? Did he think he would never get caught?

fractionalhare 6y ago
Presumably he thought he'd get away with it, yeah. Or just enjoyed his money while he had it and lived with the dissonance.
- chefkoch 6y ago
  Once it gets too big the chance to get away with it gets really slim. If you steal some millions you can dissapear and If you aren't too stupid no one will find you and after a while everyone will forget you. But with hundreds of millions you won't bei forgotten and the agencies will put enough manpower in finding you.
  - deleted 6y ago
    [deleted]
  - datavirtue 6y ago
    Yeah, it seems the key is in exploiting the lack of law enforcement resources. I read an article yesterday about Canadian doctors trafficking fentanyl patches. The,now retired, agent who busted a small ring said he could have gotten 1000 doctors if he had the resources. He also mentioned the courts would not back him up on a large bust either. If he brought them 100 doctors he said they would tell him to pick the worst seven.
chefkoch 6y ago
Bernie Madoff did the same, i think you just have to ignore that you're gonna get caught.
anm89 6y ago

EMM_386 6y ago

> The complaint alleges that Horwitz and 1inMM promised investors returns in excess of 35% If someone offers you a 35% return and they aren't the Renaissance Medallion Fund, you should probably do your due diligence. https://en.wikipedia.org/wiki/Renaissance_Technologies#Medallion_Fund https://en.wikipedia.org/wiki/Renaissance_Technologies#Medal...

hinkley 6y ago
If one vendor is offering a solution that vastly exceeds the expectation of all other vendors, current and former, you should ask a lot of questions. Either they're full of shit, or you're about to learn about some new breakthrough that everyone will be using in the future (unfortunately some of the former will claim to be the latter).
deleted 6y ago
[deleted]
Exuma 6y ago
Wow thats fascinating. So there's no way in I imagine... are their trades public?
- deleted 6y ago
  [deleted]
- bussierem 6y ago
  >The Medallion fund is considered to be one of the most successful hedge funds ever. It has averaged a 71.8% annual return, before fees, from 1994 through mid-2014.[33] The fund has been closed to outside investors since 1993[34] and is available only to current and past employees and their families.
  - noname123 6y ago
    This number has been cited often. This is not to be skeptical rather to crunch the claim: Suppose Rentech started with $50M AUM in 1994 (reasonable assumption for a small hedge fund); 50M * (1.718)^20 = 2.51 Trillion in 2014. What am I missing here?

ourcat 6y ago

I wonder how many people unwittingly confused him with Ben Horowitz.

djrogers 6y ago
None. This guy played off his Hollywood contacts, friends, and lifestyle, and his pitch had nothing to do with VC, The Valley, or anything related to Ben Horowitz.

deleted 6y ago

[deleted]

opendomain 6y ago

I see a lot of people here wondering how anyone could be taken in by Ponzi schema. However, a lot of the same people are "investing" in BitCoin - where the most recent rise in price may be due to a foreign company that mints new money out of thin air. To be clear: I am NOT BitCoin is a ponzi schema. Some other alt coins definately smell like it - especially if they are created without doing ANY kind of work.

xwolfi 6y ago
Dude I've seen people who absolutely understand that it's a ponzi, and jump in it to screw the greater fools by being themselves the greater fool of others. Most people join ponzis knowingly trying to make an impossible buck on the back of the next guy. I can understand poor communities exploited by MLM companies, maybe (but who thinks money comes from selling idiotic products to your friends, really?), but ponzi victims losing all their saving when it falls should consider: - why put so much in non mainstream vehicles (cash, real estate, your company's stock) - if non insured by the government, it's always a possibility to lose it all, it can't be such a surprise. Even a nice house can lose all its value due to a construction nearby
- LatteLazy 6y ago
  It's only a bad idea to be in the last traunch of joiners. See also GME.
lamontcg 6y ago
Bitcoin and all of crypto, in its entirety, is a Ponzi. It is backed by the same USD that Bitcoin fans claim is worthless, yet they price it in USD and extract USD from it to buy things. Eventually one day the USD supplies will get dangerously low and there will be a systemic bank run and it will collapse. It came dangerously close in 2018. The tide will eventually go out again. Two economic laws of gravity: wildcat banking systems always fail, and it is never different this time.
- earthtolazlo 6y ago

TrackerFF 6y ago

A lot of these "crypto" schemes (OneCoin etc.) operate all over the world, but cater heavily to people in third-world countries. They go on "roadshows" with their cronies, and hold glitzy conferences for people out in the boonies.

JakeAl 6y ago

The other side. https://www.youtube.com/watch?v=NsViVc2-3Jo https://www.youtube.com/watch?v=NsViVc2-3Jo

jonnybgood 6y ago

In related news, Gina Champion-Cain was sentenced to 15 years for a ponzi scheme involving $350mil. https://www.justice.gov/usao-sdca/pr/san-diego-business-leader-gina-champion-cain-sentenced-15-years-massive-ponzi-scheme https://www.justice.gov/usao-sdca/pr/san-diego-business-lead...