[HN Gopher] SEC Charges 1inMM Capital, LLC with Operating a $690...
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SEC Charges 1inMM Capital, LLC with Operating a $690M Ponzi Scheme
Author : prostoalex
Score : 108 points
Date : 2021-04-09 16:40 UTC (6 hours ago)
(HTM) web link (www.sec.gov)
(TXT) w3m dump (www.sec.gov)
| JumpCrisscross wrote:
| > _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 wrote:
| 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 wrote:
| 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.
| datavirtue wrote:
| 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.
| [deleted]
| chefkoch wrote:
| Bernie Madoff did the same, i think you just have to ignore
| that you're gonna get caught.
| duxup wrote:
| I'll venture in to the rando guy's theory on psychology here
| and say that I've seen a few good articles that indicate that
| folks who steal / commit fraud often GREATLY over estimate how
| many other people do it too.
|
| Does / did Horwitz, I don't know, but if so it is probably
| pretty easy to convince yourself to do things if you think
| everyone else is and you're just getting yours...
| [deleted]
| jandrese wrote:
| Even if you know you are going to get caught you might as well
| enjoy the money while you have it. It could take many years
| before people catch on. Also, there's a certain sense of
| entitlement that leads people to not even consider the
| consequences because they've never faced any real consequences
| in their life.
| anm89 wrote:
| He knew he was committing fraud. He thought he could get away
| with it.
| itsoktocry wrote:
| > _I don 't understand this behavior. Did he not know he was
| committing fraud? Did he think he would never get caught?_
|
| Sociopaths don't think very far ahead (otherwise it'd be
| obvious to them their behaviour would fail in repeated games).
| When everything is going well, nobody asks questions.
|
| Same deal with Archegos; how does rehypothecating collateral
| and leveraging up 10 to 1 in individual stock holdings make any
| sense in the long run? You're literally asking to blow up.
|
| The really worrying thing is: if clowns like this are out
| there, imagine what the more clever people are _getting away
| with_.
| throwkeep wrote:
| It amazes me that in the year 2021 there are still Ponzi schemes
| being pulled off like this.
| huitzitziltzin wrote:
| Expect to continue being amazed in 2041 when they still work
| and in exactly the same way.
| smachiz wrote:
| There's a sucker born every minute.
| TedDoesntTalk wrote:
| 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 wrote:
| 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 wrote:
| How does that relate at all to my comment? I think you
| replied to the wrong thread?
| mimixco wrote:
| There will always be Ponzis because it works on the greed of
| the mark. Wanting unrealistic returns and impossible profits
| makes people ok with the "rest of your story," even if it's all
| BS. The mark just has to believe he'll profit at those crazy
| levels.
| nicklecompte wrote:
| Madoff's scheme wasn't based entirely of the greed of his
| clients (though that was certainly a major factor): a lot of
| it was the Myth of Financial Genius that surrounded Madoff
| and an excessively credulous financial media which didn't
| investigate a hedge fund that in retrospect was clearly
| cooking the books. The pension funds who lost money weren't
| trying to juice their pensions, they thought their money was
| safe with someone of Madoff's pedigree.
|
| Understandable ignorance explains many victims of financial
| crimes. In this case and in Madoff's it seems to be basically
| okay people who had no idea they were dealing with a scheming
| sociopath. No need to judge their character.
| throwaway98797 wrote:
| optimistist get their comeuppance
| prostoalex wrote:
| I am amazed at the scale.
|
| On HN you read about a hustle some startup had to undergo to
| raise a $1 million seed, and here a second-rate actor
| https://www.imdb.com/name/nm4878976/ has access to $690
| million?
| natchy wrote:
| If schemes were regulated out of existence, then eventually
| there would be a huge population of gullible suckers who won't
| recognize a Ponzi scheme.
|
| Much like how most American don't barter anymore for little
| things so they're easy pickings at a car dealership. Or if
| everybody quits drinking alcohol, you'll know less people
| who've had liver failure, causing next generation to not know
| the risks, etc
| antasvara wrote:
| That's a really interesting concept, but I think somewhat
| flawed. The purpose of regulating schemes out of existence is
| so that there's a smaller chance of them existing. Even if
| that decreases one's ability to discover these schemes, it
| should (theoretically) more than even out with the decreased
| chance of investing in a Ponzi scheme.
|
| I liken it to online shopping. Online shopping today is much
| more trustworthy than 15 years ago. Improvements in
| technology and more name brand companies using the internet
| has led to an increase in trust levels for shopping today
| versus in the early 2000's. This does make us more likely to
| be scammed, but the fact that it is now harder to scam
| someone online has (I would assume) decreased the percentage
| of people making fraudulent purchases.
| jandrese wrote:
| > I liken it to online shopping. Online shopping today is
| much more trustworthy than 15 years ago.
|
| I'm not sure this is the case. I find it harder to avoid
| scams these days because some of the sites I used to trust
| went out of business because they couldn't compete with
| Amazon. But now Amazon is full of nearly impossible to spot
| fakes and sellers who flat out lie, and their system makes
| it hard to track who is who.
| TedDoesntTalk wrote:
| More and more, I go to the manufacturer's website and buy
| directly from them. If I'm buying a printed book, I use
| abebooks.com. Trying to do my part to support the Amazon
| competition. I still buy from Amazon, but not as much as
| a year ago.
| timoth wrote:
| AbeBooks does have independent sellers, but for anyone
| who was unaware, it was acquired by Amazon in 2008.
| duxup wrote:
| The fact that they happen seems rooted in human nature.
|
| I'm not sure of anything that will stop that.
| ska wrote:
| It would amaze me if there wasn't; grifts and scams are part of
| human nature - ponzi schemes are an obvious one wherever you
| have investment.
| fireeyed wrote:
| Why does this amaze you ? More than half of Startups are Ponzi
| schemes played over a longer time horizon and more artfully.
| They start with a product or service that barely generate
| profit in the real world, polish it up with Pitch Decks, sell
| the idea to investors who then sell the idea to other investors
| and on and on the scheme goes until they IPO it if it goes that
| far. The banks get ahead of it and eventually the retail
| investor and 401k are usually left holding the bag.
| fractionalhare wrote:
| That's not a Ponzi scheme, and you diminish the fraud of real
| Ponzi schemes by equating them with a frothy venture capital
| market. Very few startups deliberately commit fraud by paying
| out old investors with new investors. Just because seed and
| Series A round investors can liquidate earlier doesn't mean
| it's a fraudulent operation.
| hinkley wrote:
| The only legal difference between an MLM and a Ponzi scheme
| is that the MLM has a product. It might be closer to the
| truth to say startups bear a large resemblance to MLMs.
|
| There are a lot of anti-MLM people who think they should
| just be called Ponzi schemes. I'm on the fence about the
| terminology, but I think both should be illegal at any
| rate.
| stealthy123 wrote:
| Former fraudster here. It's a stealth ponzi scheme. An
| advanced ponzi scheme should not look like what it was
| centuries ago. A ponzi scheme can be polymorphic and
| stealth.
|
| It's like saying you are not a human because you're not
| white. Ponzi can have same structure and look legit perhaps
| play longer.
|
| Edit: Wow my texts are flagged. Strange!!
| fractionalhare wrote:
| I don't really care if you're a former fraudster or not.
| I am still outright rejecting the claim that the venture
| capital industry is engaged in, or equivalent to, a
| systematic Ponzi scheme. If you want to critique it,
| fine, but don't commit an abuse of terminology.
|
| At this point I've worked for, worked with or invested in
| over 50 different VC-backed startups. I have been brought
| in to see their code and the internals of their products.
| Yeah sure some opportunistic sociopaths like to raise
| stupid seed rounds on a fugazzi pitch deck. And the
| industry is frothy with fundraising. But you can't
| categorically classify the industry as fraudulent.
|
| There exist many varieties of high risk investments with
| a long time horizon which are not fraudulent. Everyone
| knows what they're getting into. Cases like Theranos are
| not the norm, which is why they received outsized
| attention when they're uncovered.
| stealthy123 wrote:
| I suppose you works at a VC to reject everything out
| rightly.
|
| https://www.cnbc.com/2018/10/10/start-up-economy-is-a-
| ponzi-...
|
| SPACs too ....
|
| Some people like to play double agent style stuff.
| fractionalhare wrote:
| I am an angel investor, but I am not a VC and I don't
| work for one.
| JakeAl wrote:
| The other side. https://www.youtube.com/watch?v=NsViVc2-3Jo
| opendomain wrote:
| 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.
| LatteLazy wrote:
| If someone won't tell you where the money comes from, it's a
| scam.
|
| If someone is happy to talk for hours about their low latency
| machine learning AI block chain black swan delta hedged
| arbitrage manifold engine people throw money at them.
| lamontcg wrote:
| 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.
| baobabKoodaa wrote:
| Nope. The word "ponzi" has a specific meaning. Just because
| an asset is sold from one investor to another without
| producing anything, doesn't make it a ponzi scheme. Otherwise
| you could say gold is a ponzi, or oil is a ponzi, etc.
| rodiger wrote:
| There are a lot of absolutes here, which is generally not a
| great basis for discussing emerging technology. I recommend
| you reconsider your view of crypto "in its entirety" which
| seems based on the rabid views of a few.
|
| Many seem to make the same mistake and focus too much on the
| "my coin will keep going up" crowd. There're a lot of real
| technical challenges being solved in the crypto space, and I
| feel it'll still be interesting to follow from an academic
| standpoint even after the next inevitable bubble burst.
| earthtolazlo wrote:
| If nothing else, the absurd mining costs constantly pulls
| fiat out of the cryptocurrency markets. Tether has been able
| to keep things afloat (4 billion USDT printed in April so
| far), but it's only a matter of time before everything
| collapses under its own weight.
| xwolfi wrote:
| 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 wrote:
| It's only a bad idea to be in the last traunch of joiners.
| See also GME.
| Apofis wrote:
| Also, during the last Bitcoin crash Wall Street figured out how
| to short Bitcoin and other crypto.
| EMM_386 wrote:
| > 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#Medal...
| [deleted]
| Exuma wrote:
| Wow thats fascinating. So there's no way in I imagine... are
| their trades public?
| bussierem wrote:
| >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 wrote:
| 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?
| primitivesuave wrote:
| If you had a 10% return one year and a 90% return the
| next, for an average of 50%, your total principal would
| increase by 1.1 * 1.9 = 2.09. If you calculate by the
| average instead (1.5 * 1.5 = 2.25) the rate of return is
| higher, and that error may have compounded in your
| calculation.
| [deleted]
| robertk wrote:
| The Medallion Fund does not compound... the return is not
| re-invested into the principal but disseminated to
| investors annually. The strategy they play only works up
| to a certain level of capital.
| jackt89 wrote:
| They have a maximum capacity of a few billion dollars in
| the fund. Every year they return the money they made so
| the fund stays the same size. Strategies don't scale
| indefinitely
| [deleted]
| hinkley wrote:
| 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).
| fractionalhare wrote:
| This probably comes as a shock to people outside the quant
| finance industry, but RenTech isn't the only game in town when
| it comes to regularly beating the market by one or two standard
| deviations, year after year. They're just the most famous and
| have a certain _je nais se quois_.
|
| The red flag to look out for is extraordinarily low variance of
| returns, not extraordinarily high mean of returns. Madoff never
| promised more than about 12%, but he promised to be within 1%
| of that all the time. If you look at RenTech's Medallion
| returns since 1988, they're consistently between 30% and 120%.
| They're not slamming down the same percentile every year.
|
| It's one thing to beat the market - it's still an incredibly
| difficult feat to do it consistently, but there's an element of
| chance involved. You won't beat by the same margin every year,
| even if you do beat every year. If you're hitting similar
| returns year after year, that implies your work is completely
| decoupled from the inherent randomness of market dynamics.
| silicon2401 wrote:
| can a regular joe invest in that RenTech fund?
| qeternity wrote:
| No, not even the biggest investors can. It's for RenTech's
| employees only.
| imtringued wrote:
| Actually, it doesn't sound impressive to me at all. If a fund
| gets 30% ROI per year then I assume that the fund is severely
| underfunded. After all, if they were truly that good at
| allocating capital then just give them 100 billion dollars
| and let them single handedly run the entirety of the US
| economy.
| SkipperCat wrote:
| There's a good amount of funds who actively keep their AUM
| low. If they have too much money in their strategy, it will
| discovered and that kills the golden goose. Or, there's
| just not enough liquidity in the instruments traded and the
| money would just be idle. Lots of high alpha funds have
| forced redemption just for these reasons alone.
| JamesSwift wrote:
| Scale is a large factor in how well these funds can
| perform. Even Buffet famously talks about how difficult it
| is to allocate order-of-magnitude larger amounts of money,
| because the opportunities are harder to find and you affect
| the market more as you increase your buying.
| duxup wrote:
| IIRC the folks who tried to raise the red flag on Madoff
| early on was because of what you describe. The numbers just
| didn't follow any kind of market change often enough / have
| enough fluctuation to make sense at all.
| standeven wrote:
| If you don't mind me asking, who are the other games in town?
| fractionalhare wrote:
| Basically any established HFT, though they're market making
| instead of market taking. TGS. Baupost. Soros had an
| excellent run for like 30 years. Simons' family office,
| Euclidean, does well. A lot of under the radar family
| offices which don't have stringent reporting requirements.
| Various groups in Citadel, Point72 and Millenium.
| Appaloosa. A bunch of prop trading groups in the Chicago
| area. And outside of quant, the top long/short equity funds
| regularly do well. Like Coatue.
| TedDoesntTalk wrote:
| I looked at a few of these; none seems to take investment
| from average joes. Even if i show up with $1M in cash,
| doesn't look like any doors are open. Is that accurate?
| [deleted]
| prostoalex wrote:
| With Renaissance (and a few others) a significant number
| of employees have an above average net worth, and choose
| to invest their spare capital with the fund, slowly
| crowding out any outsiders.
|
| Bona fide lack of access for outside investors is
| probably a strongly positive signal in this industry.
| short_sells_poo wrote:
| To most of these firms, a new client with $1mln is not
| worth the hassle at all. On the off chance some capacity
| is freed up, its given as priority to clients who have
| 100s of millions invested already. To a degree it's a
| privilege to invest in this league.
| fractionalhare wrote:
| Yeah. A well-performing fund will never open its books
| for a seven figure check. They could likely find a senior
| employee (not even a partner) willing to invest that.
|
| Another investor is another person you have to have a
| relationship with.
| TrackerFF wrote:
| 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.
| anm89 wrote:
| 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.
| stealthy123 wrote:
| 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!
| antasvara wrote:
| 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.
| Bukhmanizer wrote:
| > 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.
| nicklecompte wrote:
| 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 wrote:
| 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 wrote:
| Makes sense
| RotaryTelephone wrote:
| [takes notes]
| jandrese wrote:
| 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 wrote:
| 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 wrote:
| That is what he said already. "it was a front to get investor
| money to cycle to other investors"
| mherdeg wrote:
| 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.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/201...
| , 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 wrote:
| 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.
| vsareto wrote:
| They usually think they can get out before it blows since
| they're holding the cards.
| [deleted]
| ourcat wrote:
| I wonder how many people unwittingly confused him with Ben
| Horowitz.
| djrogers wrote:
| 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.
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