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While I agree "Ponzi scheme" is tossed around a bit too liberally, Zynga is pretty close: A Ponzi scheme is a fraudulent investment operation that pays returns

While I agree "Ponzi scheme" is tossed around a bit too liberally, Zynga is pretty close: A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. (Wiki) The fact that the early investors cashed out like kings from the IPO, and later investors shouldered all the losses and may not even recover the liquidation value of the assets is pretty close to the definition. All that is missing is the "fraud" part, but that's a bold accusation and hard to prove. Then again, this story isn't over.

bduerst 14y ago
Cashing out at an IPO isn't a ponzi scheme - it's selling assets directly to new investors. Just because the new investors were not smart in their investment does not make it a ponzi scheme.
- tatsuke95 14y ago
  A Ponzi scheme inolves paying returns to investors out of the investment capital of subsequent investors. That's the definition. The executives and VCs of Zynga built up a product and took their returns from the public by selling the public shares, which is a right to the future profits of the company[1]. Only, it turns out that those with the best knowledge of the inner working of the company probably knew there were no profits to be had, nor any on the horizon. This is made evident by the inside selling and relatively fast decline of the the company's share price. So, while I don't go around claiming Zynga (or any such bust up) is akin to Madoff, I don't think the difference is as large as you think. It's all about intent, and we'll never really know. The rest of the pieces are there. By the way, I'm long Zynga January 2014 calls. They may have been the recipient of loose SV money, and as such got lazy, but there is demand for this product if they can get it together. There's a real business here, so I guess I'm in the non-Ponzi crowd. [1]If you aren't investing with the intent on earning the future profits of the company, but instead are looking to sell at a higher price, you are speculating, not investing. I don't feel sorry for speculators, it's the nature of that zero sum game.
  - deleted 14y ago
    [deleted]
  - bduerst 14y ago
    By your convoluted logic, the entire stock market is a ponzi scheme. Buying a share does not give you the right to future profits in a company. It gives you ownership and control over a percentage of the corporation, and does not guarantee a dividend. By selling shares to the public, the shareholders are trading control of the company for money with the public investor. Whether or not they bought a lemon is the fault of the public investor. It is _not_ a ponzi scheme, it is the exchange of assets.
    - tatsuke95 14y ago
      >the entire stock market is a ponzi scheme It isn't "my logic", it's the definition of a Ponzi scheme: early investors were paid out by later investors, with the bottom falling out for the later investors. That hasn't happened, because the story is still unwinding. It might not ever happen. It will only be obvious in hindsight. Besides, I own many stocks, and they return income to me. >Buying a share does not give you the right to future profits in a company. >it gives you ownership and control over a percentage of the corporation For someone critical of "logic", those two statements contradict each other. A company is expected to be profitable, and owning a stake in it entitles me to a share of those profits. What do you think Zynga is promising when they sell me a share of the company at IPO? Do you really think they are saying, "Here's part of this company. It might make money, or it might not, but perhaps someone will buy it from you for a higher price at a later date"? Good luck with your portfolio if you base it on a different philosophy. >Whether or not they bought a lemon is the fault of the public investor. Well, I'm sure the SEC would disagree with you on that statement. >It is _not_ a ponzi scheme, it is the exchange of assets. One does not preclude the other. Ponzi's original fraud involved the exchange of assets. The scam is in what they tell me the asset is worth and what it is actually worth.
      - bduerst 14y ago
        >It isn't "my logic", it's the definition of a Ponzi scheme: early investors were paid out by later investors, with the bottom falling out for the later investors. Definition [1]: A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. This is not what selling stock in an IPO is because stock is not non-existent. A share of equity is a very real asset. You are committing a No True Scotsman fallacy by trying to redefine the term to fit your needs. >Besides, I own many stocks, and they return income to me. Just because you own equity does not mean you are an expert. Case in point: You don't know the difference between company net income, returned earnings, and dividends. >A company is expected to be profitable, and owning a stake in it entitles me to a share of those profits. No it does not entitle you to a share of any net income. All it entitles you to is vote of power. This is how corporations work. It's basic business, for christ's sake. [2] >Well, I'm sure the SEC would disagree with you on that statement. Why? Did Zynga falsify an annual filing or their 10-k? No? Then the SEC doesn't give a shit. >One does not preclude the other. Yes, it very much does, because in a ponzi scheme you give up your money to an investor for their service. In an IPO, you give up your money for shares of equity, which you sell later. I'm not going to go in circles with you on this any longer. You've either have a case of confirmation bias or you're trolling. It's a shame because you're another example of a rational but unintelligent investor. [1] https://www.google.com/search?oq=define%3Aponzi+scheme&sugexp=chrome,mod=0&sourceid=chrome&ie=UTF-8&q=define%3Aponzi+scheme&safe=active#hl=en&safe=active&q=ponzi+scheme&tbs=dfn:1&tbo=u&sa=X&ei=WEeIUO2CEInciQLxpoG4CA&ved=0CB4QkQ4&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.&fp=80ef5323c76d6b79&bpcl=35466521&biw=984&bih=664 https://www.google.com/search?oq=define%3Aponzi+scheme&s... [2] http://en.wikipedia.org/wiki/Equity_(finance) http://en.wikipedia.org/wiki/Equity_(finance)

bduerst 14y ago

Cashing out at an IPO isn't a ponzi scheme - it's selling assets directly to new investors. Just because the new investors were not smart in their investment does not make it a ponzi scheme.

tatsuke95 14y ago
A Ponzi scheme inolves paying returns to investors out of the investment capital of subsequent investors. That's the definition. The executives and VCs of Zynga built up a product and took their returns from the public by selling the public shares, which is a right to the future profits of the company[1]. Only, it turns out that those with the best knowledge of the inner working of the company probably knew there were no profits to be had, nor any on the horizon. This is made evident by the inside selling and relatively fast decline of the the company's share price. So, while I don't go around claiming Zynga (or any such bust up) is akin to Madoff, I don't think the difference is as large as you think. It's all about intent, and we'll never really know. The rest of the pieces are there. By the way, I'm long Zynga January 2014 calls. They may have been the recipient of loose SV money, and as such got lazy, but there is demand for this product if they can get it together. There's a real business here, so I guess I'm in the non-Ponzi crowd. [1]If you aren't investing with the intent on earning the future profits of the company, but instead are looking to sell at a higher price, you are speculating, not investing. I don't feel sorry for speculators, it's the nature of that zero sum game.
- deleted 14y ago
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- bduerst 14y ago
  By your convoluted logic, the entire stock market is a ponzi scheme. Buying a share does not give you the right to future profits in a company. It gives you ownership and control over a percentage of the corporation, and does not guarantee a dividend. By selling shares to the public, the shareholders are trading control of the company for money with the public investor. Whether or not they bought a lemon is the fault of the public investor. It is _not_ a ponzi scheme, it is the exchange of assets.
  - tatsuke95 14y ago
    >the entire stock market is a ponzi scheme It isn't "my logic", it's the definition of a Ponzi scheme: early investors were paid out by later investors, with the bottom falling out for the later investors. That hasn't happened, because the story is still unwinding. It might not ever happen. It will only be obvious in hindsight. Besides, I own many stocks, and they return income to me. >Buying a share does not give you the right to future profits in a company. >it gives you ownership and control over a percentage of the corporation For someone critical of "logic", those two statements contradict each other. A company is expected to be profitable, and owning a stake in it entitles me to a share of those profits. What do you think Zynga is promising when they sell me a share of the company at IPO? Do you really think they are saying, "Here's part of this company. It might make money, or it might not, but perhaps someone will buy it from you for a higher price at a later date"? Good luck with your portfolio if you base it on a different philosophy. >Whether or not they bought a lemon is the fault of the public investor. Well, I'm sure the SEC would disagree with you on that statement. >It is _not_ a ponzi scheme, it is the exchange of assets. One does not preclude the other. Ponzi's original fraud involved the exchange of assets. The scam is in what they tell me the asset is worth and what it is actually worth.
    - bduerst 14y ago
      >It isn't "my logic", it's the definition of a Ponzi scheme: early investors were paid out by later investors, with the bottom falling out for the later investors. Definition [1]: A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. This is not what selling stock in an IPO is because stock is not non-existent. A share of equity is a very real asset. You are committing a No True Scotsman fallacy by trying to redefine the term to fit your needs. >Besides, I own many stocks, and they return income to me. Just because you own equity does not mean you are an expert. Case in point: You don't know the difference between company net income, returned earnings, and dividends. >A company is expected to be profitable, and owning a stake in it entitles me to a share of those profits. No it does not entitle you to a share of any net income. All it entitles you to is vote of power. This is how corporations work. It's basic business, for christ's sake. [2] >Well, I'm sure the SEC would disagree with you on that statement. Why? Did Zynga falsify an annual filing or their 10-k? No? Then the SEC doesn't give a shit. >One does not preclude the other. Yes, it very much does, because in a ponzi scheme you give up your money to an investor for their service. In an IPO, you give up your money for shares of equity, which you sell later. I'm not going to go in circles with you on this any longer. You've either have a case of confirmation bias or you're trolling. It's a shame because you're another example of a rational but unintelligent investor. [1] https://www.google.com/search?oq=define%3Aponzi+scheme&sugexp=chrome,mod=0&sourceid=chrome&ie=UTF-8&q=define%3Aponzi+scheme&safe=active#hl=en&safe=active&q=ponzi+scheme&tbs=dfn:1&tbo=u&sa=X&ei=WEeIUO2CEInciQLxpoG4CA&ved=0CB4QkQ4&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.&fp=80ef5323c76d6b79&bpcl=35466521&biw=984&bih=664 https://www.google.com/search?oq=define%3Aponzi+scheme&s... [2] http://en.wikipedia.org/wiki/Equity_(finance) http://en.wikipedia.org/wiki/Equity_(finance)