Making headlines recently has been Ponzi schemes; I find this fitting since there are so many around, in crypto and traditional finance. A recent Ponzi unravelling has been a Hollywood based scheme run by Zachary Joseph Horwitz, a small-time actor who goes by the name Zach Avery.
The news breaks after Bernie Madoff, infamous for his 65 Billion Dollar Ponzi, recently passed away. People often vilify him and single him out as a bad apple, when to me, he was just one who got caught, and there are plenty of Ponzi schemes around, all only different in cash flow and name.
While Bernie was able to secure funding from celebrities, family offices and hedge funds, Zack actually did something I think was a lot harder and secured funding from businesses. Granted, Bernie's scheme reached 100 times what Zacks did; the $690m Ponzi scheme is still a fascinating story and one that requires a deeper look.
The story of 1inMM Capital LLC
Zachary started 1inMM Capital LLC and claimed he was raising money to buy movies that he intended to resell in other markets, primarily Latin America.
In reality, he had no business relationship with either Netflix or HBO. He relied on fabricated contracts and fake emails to swindle investors, according to regulators and reported by news24.com and NBC News.
The scheme ran for about 6 years before it unravelled, which shows you how long these things can roll on. To give you context, Bernies ran for 17 years. The longer the Ponzi rolls on, the bigger the value that is sucked in.
Can you imagine $690 million allocated to a company that does nothing in only 6 years?
Capital allocation atrophy
We have more money in circulation than ever before. A lot of that sits in the financial markets under continued centralised control. It sits with people who have their mistakes bailed out and their wins multiplied by the leverage. Moral hazard is at an all-time high, so you can see why finding real companies and opportunities don't matter anymore.
People are willing to take insane amounts of risk to try and get a return, and what offers better returns than a scam?
We all like to think we're too smart to be the patsy at the table, and that's why we can and will get caught off guard. I am constantly relooking my investments and the way I see the world, so I don't drink the kool-aid and get caught off guard.
It's tough; it's so easy to be sold by numbers, charts and narratives these days.
Question your investments
Having all this excitement around stocks, be it private or public markets, or these NFT's or these altcoins, you need to ask yourself,
- Are you smarter than people allocating millions?
- Are you doing more research than them?
- Are you investing in a space where you an expert?
- Are you just chasing returns?
Not all Ponzi's have to be blatant, they don't have to offer crazy returns, but they can still be glorified money shifters. I think this will be the first of many more Ponzi's to unravel, there's a certain Chinese company with plenty of rumours around it, and I'm watching it closely until we get confirmation, and this is a publicly-traded company that should be vetted.
As Jim Chanos says, we're in the golden age of fraud, and as people's money loses value, they continue to try and beat the market by making and taking riskier bets or simply plundering as much as they can while they can.
Have your say
What do you good people of HIVE think?
So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."
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