Crime and Punishment 3.0 Flashcards
What was the Nikola fraud, and how did it lead to legal consequences for the founder, Trevor Milton?
Nikola, an electric truck company, falsely claimed to have developed a revolutionary zero-emission truck that was actually a non-functioning prototype. In one infamous promotional video, the company showed the truck rolling downhill without a working engine. Founder Trevor Milton was convicted of fraud in 2023 for misleading investors about the company’s capabilities and was sentenced to prison.
What is vaporware, and how does it contribute to fraud in technology industries like Nikola’s?
Vaporware refers to products that are promised by a company but never actually materialize, often used to generate excitement and investor interest. Nikola’s fraudulent claims about their electric truck prototype were a clear example of vaporware. The company promoted an idea (the truck) without having a functional product to back it up, deceiving investors and consumers.
What common thread do Nikola, Theranos, and FTX share in terms of fraudulent business practices?
Nikola, Theranos, and FTX are examples of fraudulent companies that misled investors and the public by overstating capabilities and delivering false promises. In each case, the founders used charismatic leadership to create hype around unproven or non-existent products. The legal consequences, including prison sentences for leaders like Trevor Milton and Elizabeth Holmes, highlight the criminal consequences of such actions.
How does cryptocurrency enable fraud like rug pulls and Ponzi schemes?
Cryptocurrencies enable fraud through rug pulls (where creators abandon a project after attracting investors) and Ponzi schemes (where returns are paid to earlier investors using new investors’ money). Decentralized platforms offer anonymity, making it harder for regulators to catch fraudulent actors. These schemes exploit lack of oversight in the crypto world.
What is dumping
Dumping occurs when developers quickly sell off their own large supply of tokens. Doing so drives down the price of the coin and leaves remaining investors holding worthless tokens.
What did Theranos claim to do.
Theranos claimed that they could test hundreds of tests on a single blood drop. It used less blood than other technology.
What was Elizabeth Holmes’ punishment.
Her company was found for defrauding 10 victims out of $121 million. She was sentenced for 135 months.
Who coined the term Vaporware and when?
A microsoft engineer in 1982
Who is the Nikola founder
Trevor Milton
What are the various types of rug pulls?
There are three main types of rug pulls in crypto: liquidity stealing, limiting sell orders and dumping.
What is liquidity stealing
Liquidity stealing occurs when token creators withdraw all the coins from the liquidity pool.
What is limiting sell orders
Limiting sell orders is a subtle way for a malicious developer to defraud investors. In this situation, the developer codes the tokens so that they’re the only party that is able to sell them.
What is the difference between hard pulls and soft pulls
A hard pull in this case refers to a rug pull, where the creators of a cryptocurrency project or token withdraw all funds from liquidity pools or exit the project entirely, leaving investors with worthless assets. This is a deliberate scam designed to make a quick profit at the expense of unsuspecting users. A soft pull, on the other hand, could refer to a less aggressive form of fraud, where a project may slowly siphon off funds or reduce liquidity over time without making an immediate exit, leaving the project running for a while to maintain the appearance of legitimacy. Both actions are forms of fraud, but a hard pull is a more abrupt and total theft, while a soft pull might involve more gradual manipulation of funds or the project’s value.
Are crypto rug pulls illegal?
Crypto rug pulls are not always illegal, but they are always unethical. Hard rug pulls are illegal. Soft rug pulls are unethical, but not always illegal.
What is an example of crypto rug pull.
The collapse of the Turkish cryptocurrency exchange Thodex is a prime example of a rug pull in crypto. The $2 billion dollar theft was one of the biggest crypto rug pulls of 2021.
What is a pump-and-dump scam?
A pump and dump is a securities scam usually involving stocks. Scammers create false hype about a stock in order to generate interest. Once investors start buying shares, the price of the stock goes up. When the price reaches a certain point, the scammers behind the fake hype sell all of their shares. This causes the stock price to plummet, which leaves new investors holding the bag.
What is an example of a pump and dump scam?
Squid Game. The $SQUID coin had no ties with the show or Netflix but that didn’t stop many from jumping on the hype train causing the value from one penny to $2,800 and then free-fall back down to pennies minutes later. This resulted in the scammer making $2 million while those who purchased the coin lost money.
