fraud securities cryptocurrency
Is an &#39;honest&#39;, tongue-in-cheek ponzi scheme ICO still illegal to operate?
<p>I've just come across what appears to be a <a href="http://ponzicoin.co/" rel="noreferrer">deliberate parody ICO known as PonziCoin</a>. It declares itself to be "The World's First Legitimate Ponzi Scheme", on the grounds that it is open and transparent about its intentions to funnel late investors' money into the hands of the founder and earlier investors. For some reason I can't fathom, at least some people appear to be investing real money in this.</p>

<p>I'm aware that actual Ponzi Schemes are against the law in most countries. The founder appears to be based in San Francisco so presumably US law applies here. The question is: is such a scheme against the law even if it never pretends to be anything else?</p>

<p>The ultimate question is whether an obviously joke enterprise constitutes a real offering of securities or just performance art (a Ponzi scheme is one of many types of securities fraud).</p>

<p>An unregistered offering of securities that does not fall within an exception is per se unlawful under federal law, but a security is generally defined as something offered with at least a prospect of making a potential profit for the investor which is not something that is true of this offering. (And if less than $1,000,000 are sold it might even be within an exemption to securities laws).</p>

<p>State securities laws are divided into two categories. Most allow any offering of securities so long as proper disclosures are made and the offer is restricted to the right kind of investors. A minority impose substantive quality standards on offerings and this offering might violate the law in those states (although this still would present the question of whether a known money losing opportunity is really a security since there is no evidence of an intent to potentially make a profit from the investment). I do not believe that California imposes substantive quality of investment standards on public or private offerings of securities.</p>

<p>Any deal whether or not it is a security is actionable if it is fraudulent. Normally an element of any claim for fraud is justified reliance upon a representation or upon a failure to disclose information. But, in this case, it is hard to see how anyone could say that they were justified in relying on any representation in making a purchase because they were told that they were being cheated. So, it is hard to see how a fraud claim would be sustained here either.</p>

<p>I'm not sure that this cleanly falls into the category of gambling either, even though there is money at stake and the outcome isn't entirely certain. This doesn't really seem like a game of chance to me.</p>

<p>Indeed, viewed as performance art, this scheme might even be entitled to First Amendment protection.</p>

<p>Ultimately, I would not prioritize a civil or criminal action against this enterprise either from the perspective of a private lawyer representing an investor, or from the perspective of a government enforcement authority. And, while I would be a little nervous about running this enterprise, I wouldn't be quaking in my boots. In a civil lawsuit, any award would probably be minimal, and in a criminal case there would probably be an extremely generous plea offered.</p>

<p>The site is worded as a parody, so it's likely this isn't a thing. Further, there is now a disclaimer on the site that says </p>

<blockquote>
  <p>This has gotten crazy out of hand, I apologize but we will no longer be selling PonziCoin on this site because this was a joke. I cannot terminate the contract but I will not be selling any coins that I own.</p>
</blockquote>

<p>In the Q&amp;A section, under "This seems like a great investment opportunity!," the reply is:</p>

<blockquote>
  <p>A: No, this is a joke. Don't put any significant amount of money in this, follow /r/personalfinance's advice and please don't invest more than you can lose in crypto</p>
</blockquote>
