Crime and punishment 3.0 Flashcards
Theranos
Imagine if a single drop of blood could run over 240 tests and give you details about all kinds of flues, infections, and diseases. This is what the company Theranos advertised in 2022, and it was a complete lie. The CEO Elizabeth Holmes is now behind bars for 11 years for defrauding victims out of 121 million USD and not accepting responsibility.
Theranos, although it was giving 240 test results for every drop of blood, didn’t tell its customers that the test results were absolutely fake. Elizabeth Holmes’ trial was about whether or not she knew about the defrauding she was committing, and using text messages between her and her chief operating officer, Balwani, she was found guilty.
In a separate trial, Balwani was tried and tested on 10 counts of wire fraud and 2 counts of conspiracy to commit wire fraud. The sentence Balwani will be facing has not yet been revealed to the public.
Nikola One truck
The Nikola One Truck was supposed to be the breakthrough into future road vehicular technology. It raised over 760 million USD as funds to work on the research, development, and production. However, the company never even managed to make a working model.
In December 2016, the company presented the truck as fully functional, but smartly restricted the audience from stepping onto the stage for ‘safety concerns’. These safety concerns were later revealed to be fake.
In January 2018, Nikola posted a video on youtube showing the Nikola One Truck driving down a road, titled ‘In motion’. Little did anybody know, this video was taken on a hill, and the truck was moving down from the force of gravity, not its own engine.
In a bombshell report, all these secrets about the Nikola One Truck were revealed, and caused a lot of backlash. Nikola soon released a press release admitting everything, stating that Nikola didn’t plan on making the Nikola One Truck since 2017, and was instead using the money to invest in the Nikola Two Truck, which was supposably partially functional and much better.
Nikola also admitted that hydrogen fuel cells and the motors never worked, which were the two main components advertised about the truck. As well as that, the company says its time to move on, and look at the next ‘future’ or road vehicular technology, the all impressive Nikola Two Truck.
The CEO and founder Trevor Milton has been sentenced to 4 years in jail, and to pay a 1 million dollar fine. This was as a result of the many lies, defrauding, and crimes committed in the EV Truck Case.
Vaporware
Vaporware is when a company advertises a product in front of the public’s eye, either as a television commercial, as an event, or on social media, in an attempt to raise funds, even when the product is not or hasn’t been under production yet.
Vaporware products usually never reach the market, and even if they do, reach far beyond the timeline given by the company.
Some of the most infamous examples of Vaporware are Ovation, VideoPad, Silicon Film, Infinium Phantom, Palm Foleo.
Most commonly, there is no punishment for commiting vaporware, other than lost in public trust. However, in some cases involving money fundraising or public defraudment, company officials can face anything from a small fine, to community service, to life in jail, depending on the severity of the crime.
Quibi
Quibi:
Quibi was a short form media viewing platform which only lasted six months, despite the company raising over 1.75 billion dollars. They decided to shut their company down because there was an infinite amount of competition, especially during the pandemic and there was no special feature which attracted users on to Quibi rather than other platforms. They soon returned money to paid subscribers and investors.
Life at sea cruise
Life at Sea Cruise was a 3 year long cruise voyage around the world. However, the project called it off abruptly (less than two weeks before departure) which caused many clients who had sold/ rented their houses for this experience in misery- as they had no house to return to and had sold a lot of their personal belongings. They would also have to wait several months before they get their money back.
LuckIn Coffee:
LuckIn Coffee:
LuckIn Coffee is a Chinese rival to Starbucks and was involved in scandals.
Bitconnect:
Bitconnect:
Bitconnect was a trading bot which allowed people to lend the value of Bitconnect Coin in return for interest payments. It was an open source crypto currency what was connected with a Ponzi scheme.
FTX
FTX is a bankrupt company for crypto currency exchange, but due to insider trading and mishandling of client funds, the company was soon labeled as fraud. During its peak, the company had almost 1 million users and was the third largest crypto currency exchange.
Crypto-Currency Fraud
Rug Pull
A rug pull is a form of cryptocurrency scam in which a team artificially inflates the value of their project’s token, only to vanish with the invested funds, leaving investors with worthless assets. This deceitful act occurs when developers create a new crypto token, drive up its price, extract significant value, and then abandon it, causing its value to plummet to zero. There are three types of rug pulls: liquidity stealing, limiting selling orders and dumping.
Crypto Currency Fraud
Rug pulls in cryptocurrency are when fraudulent developers on team members pump up the value of their asset before disappearing with the funds, leaving investors with a valueless asset. Rug pulls are usually done closely upon creating a new crypto token, and cause thousands of people to lose thousands of dollars, so a few people can make millions.
Methods of Rug pulling
There are 3 methods of rug pulling. Liquidity stealing, limiting sell orders, and dumping.
Liquidity stealing is when the team members withdraw all their coins from the stock market, sending the value crashing and leaving everyone else with nothing.
Limiting sell orders is a sneaky way to rug pull, in which the developers code the crypto so only they can sell. They often pair it with another token, and promote it to retail investors, who upon increasing the price, enable the developers to drop the coin and take all the profits.
Dumping is when fraudulent members mass advertise their crypto on social media and other advertising platforms, after which when the price goes up, they dump all their coins, crashing the market and the price of the crypto.
Rug pulling morals
There are two types of rug pulling. Hard and Soft. Hard is when there has been intentional coding in the crypto to bias the developers and allow them to steal the money. Soft is often related to dumping, in which the developers sell out all their tokens in a short time.
Rug pulls are not always illegal. Hard pulls are always illegal, and soft pulls can sometimes be illegal, but they are always unethical. They take the money of hard working citizens who put their trust in the coin, and so should never be done.
Avoiding Rug Pulls
Here are the main points presented in bullet points:
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Unknown or Anonymous Developers
- If the developers behind the cryptocurrency are unknown or anonymous, it is likely a red flag indicating a potential rug pull.
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No Liquidity Lock
- A liquidity lock prevents team members from executing a rug pull.
- Lack of a liquidity lock may indicate potential issues.
- The Total Value Locked (TVL) should be above 80%.
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Limits on Sell Orders
- If you are unable to sell your tokens, it may indicate an illegal rug pull.
- Test by buying a small amount of the token and attempting to sell it immediately to check for issues.
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Skyrocketing Prices
- If the price is skyrocketing with limited investors, it may be because some investors are holding large amounts and plan to dump them once the price increases.
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Too High Yields
- Promises of extremely high yields are likely false advertising aimed at luring investors into a rug pull.
- If it seems too good to be true, it probably is.
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No External Audits
- Verify if there has been an external audit conducted by a reputable source.
- Do not trust developers’ claims of an audit without proof or an actual audit report.
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General Advice
- Be careful with your money and where you invest it.
- Ensure you don’t fall for hard or soft rug pulls, liquidity stealing, limiting sell orders, or dumping.
Blockchain Global Scams
- Blockchain Global Scam (HyperFund, HyperVerse) - masterminded by Sam Lee and Zinijing “Ryan” Xu
- Operated for 3 years, caused millions in losses across thousands of victims
- Exploited loopholes in Australian regulations:
- Fake Audit: hid backdoors for founders to steal funds
- Misleading Verification: gained trust from Australian authorities
- Slow Scheme: built trust and hype over time
- Rug Pull: manipulated token price, then dumped assets and fled
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Current Status:
- Company: $58 million in debt (administration)
- Sam Lee: Living lavishly in Dubai
- Ryan Xu: Whereabouts unknown
Wire Fraud
Wire fraud is a huge problem in the world today, with no country taking responsibility for it. Wire fraud is done online, and usually the scammer’s whereabouts are unknown. There is no justice system whose time can be spent on issues like this, and so most of the time the crimes go unreported, or unresolved.
One of the solutions to this problem is the Wire Fraud Statute in the USA, which only applies within the country. But this statute states that lying or defrauding in online payment scams are a crime. Although this helped lower the wire frauds slightly, it doesn’t fully solve the issue, since the definition of wire fraud isn’t clear. Many people use loopholes and get away with clear wire fraud, and there is nothing anyone can do about it.
Everything from rug pulling to insider trading theoretically comes under wire fraud, but the truth is, most of the time they are not officially criminal acts, and so the scammers aren’t sent to jail.
