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posted by on Thursday January 05 2017, @06:07PM   Printer-friendly
from the this-is-truly-outrageous dept.

The trial of a Southern California-based financial scam is now set to go to the penalty phase next Tuesday to determine how much the company and the scheme's architect, Steve Chen, should pay the Securities and Exchange Commission.

Last month, a federal judge ruled that Chen's Gemcoin operation was fraudulent. "The violation took place over years and involved elaborate schemes," US District Court Judge R. Gary Klausner wrote in a summary judgment against Chen. "Defendant has shown no sign of recognition of wrongdoing and has offered no assurances against future violations." The SEC argued in court filings on December 21, 2016 that the remaining issues should be determined by the judge and not a jury and that said judge should find "in favor of sizeable penalties."

Amazingly, the amber mines did actually exist, according to a report filed late last year by the court-appointed receiver.

Some background on the Gemcoin scam and ensuing lawsuit.

How could an average person have known this was a scam? And how is this Gemcoin different, i.e. less reliable, than a more established crypto-currency like Bitcoin? Money is only money because people accept it. What makes Gemcoin a scam rather than a failed attempt at competing with Bitcoin?

-- submitted from IRC


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  • (Score: 3, Informative) by hemocyanin on Thursday January 05 2017, @06:34PM

    by hemocyanin (186) on Thursday January 05 2017, @06:34PM (#449853) Journal

    Yep. From the link in TFS on Gemcoin background:

    USFIA marketing websites labeled Bitcoin risky due to its categorization as a “decentralized” currency. USFIA claims that because its value is derived from market demand, it is unstable and subject to deflation.

    Gemcoin, alternatively, had precious gems worth $15 billion to back the currency’s value, similar to the concept of gold and U.S. dollars.

    The difference between bitcoin and gemcoin, is nobody thinks bitcoin is backed by anything but burned up electricity and nobody has ever pretended otherwise. Also there is this classic pyramid structure:

    Investor packages were sold in various amounts, ranging from $1,000 to $30,000, and as with any pyramid scheme, early investors who brought people into their downline would earn bonuses and awards.

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  • (Score: 2) by jdavidb on Thursday January 05 2017, @06:43PM

    by jdavidb (5690) on Thursday January 05 2017, @06:43PM (#449855) Homepage Journal
    Bitcoin "mining" isn't "burned up electricity." It is computation invested in preventing the threat of double spending.
    --
    ⓋⒶ☮✝🕊 Secession is the right of all sentient beings
    • (Score: 2) by bob_super on Thursday January 05 2017, @07:24PM

      by bob_super (1357) on Thursday January 05 2017, @07:24PM (#449876)

      It's the only link between the bitcoin value and the rest of the economy, and sets a pain threshold.
      The treat of double-spending is just an inner mechanism that allows that investment, therefore setting the value expectation.

    • (Score: 2) by Thexalon on Thursday January 05 2017, @08:07PM

      by Thexalon (636) on Thursday January 05 2017, @08:07PM (#449900)

      Bitcoin "mining" isn't "burned up electricity." It is computation invested in preventing the threat of double spending.

      The thing is, the only reason that computation is at all useful is that some people accept Bitcoins as currency. If they didn't, then the computation in question would be utterly useless, and the resources might be better put towards, say, Folding@Home [stanford.edu].

      --
      The only thing that stops a bad guy with a compiler is a good guy with a compiler.
      • (Score: 2) by jdavidb on Thursday January 05 2017, @08:48PM

        by jdavidb (5690) on Thursday January 05 2017, @08:48PM (#449925) Homepage Journal
        Yes, their computations are making my Bitcoin quite valuable, which is why I keep trying to get as much of it as I can afford.
        --
        ⓋⒶ☮✝🕊 Secession is the right of all sentient beings
    • (Score: 2) by FatPhil on Thursday January 05 2017, @10:07PM

      by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Thursday January 05 2017, @10:07PM (#449960) Homepage
      So it's keeping the currency afloat by pulling up on its own shoelaces. Got it.
      --
      Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
      • (Score: 3, Insightful) by jelizondo on Friday January 06 2017, @12:24AM

        by jelizondo (653) Subscriber Badge on Friday January 06 2017, @12:24AM (#450011) Journal

        Some days ago I was researching something quite similar, because someone said most money in circulation was no longer printed and threw a figure of 90-95% of all money existed only as bits on some computer.

        I could not find a real source of U.S. money but found an official U.K. [whatdotheyknow.com] reference that suggests by 2010 about 80% of the currency was simply bits:

        It is true that with quantitative easing, the £200 billion of cash injected into the economy financed by the creation of central bank reserves was done electronically.

        So in effect, pounds are not much better than bitcoin or any other currency actually. Money is worth whatever people believe it is.

        • (Score: 2) by FatPhil on Friday January 06 2017, @01:00AM

          by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Friday January 06 2017, @01:00AM (#450023) Homepage
          I think the 90-95% figure answers the question "what fraction of the economy (the flow of "money"), is simply the exchange of things with no intrinsic value?". And I think it's at the upper end of that range. That puts most of us in rather a large bubble.

          Anyone who's lived through hyperinflation knows that indeed fiat currency sometimes isn't even worth the paper it's written on. You know things are bad when notes are worth less than an equivalent square-inchage of toilet paper.

          I did once ask Graham Kentfield, while he was in power as Cheif Cashier, quite what the Bank of England would give me if I as a bearer of one of their notes were to demand the value of the note be given to me, and his response was "a replacement note, at best, probably the same note back".
          --
          Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
          • (Score: 2) by jelizondo on Friday January 06 2017, @02:02AM

            by jelizondo (653) Subscriber Badge on Friday January 06 2017, @02:02AM (#450046) Journal

            Very good story. Actually he was honest, he could have pocketed the note and told you quite truthfully that it was worth nothing ;-)

            Thinking about this it dawned on me that I never tried to exchange U.S. dollars for gold, back when you supposedly could, may I would have learned something.

          • (Score: 2) by maxwell demon on Friday January 06 2017, @07:24AM

            by maxwell demon (1608) on Friday January 06 2017, @07:24AM (#450133) Journal

            Given the name of the UK currency, you should get a pound of Sterling silver. [wikipedia.org]

            --
            The Tao of math: The numbers you can count are not the real numbers.
      • (Score: 2) by jdavidb on Friday January 06 2017, @02:52AM

        by jdavidb (5690) on Friday January 06 2017, @02:52AM (#450064) Homepage Journal

        That's pretty much the complete opposite of what I said. The computations are accomplishing something real. They are making a secure, unforgeable, finite supply, cryptographically sound currency.

        But if people don't think so, they don't have to have any of it. And if they have any extra and want to unload it real cheap, let me know! :)

        --
        ⓋⒶ☮✝🕊 Secession is the right of all sentient beings
      • (Score: 0) by Anonymous Coward on Friday January 06 2017, @06:32AM

        by Anonymous Coward on Friday January 06 2017, @06:32AM (#450121)

        This is why I worry about jdavidb. Homeschooling seems to predispose one to falling for scams. Goldbug? 5-gal survival food pails? Amber?

  • (Score: 1) by charon on Thursday January 05 2017, @07:57PM

    by charon (5660) on Thursday January 05 2017, @07:57PM (#449894) Journal

    Well, the pyramid structure part would be a decent tip off of a scam. But then, plenty of people ignore that when it comes to Amway or Bernie Madoff.

    I guess I fundamentally don't get the unbacked currency idea. Having a million bitcoins means nothing unless you can find another person willing to take them in exchange for something you want. Bitcoin happens to be over that hurdle, but other currencies which have not cleared it yet are possibly scams? Is it fake up until it reaches a critical mass of users/accepters and then it's real?

    • (Score: 3, Interesting) by jelizondo on Friday January 06 2017, @12:33AM

      by jelizondo (653) Subscriber Badge on Friday January 06 2017, @12:33AM (#450014) Journal

      In effect, all currency is worth whatever people believe it is. Dollars, Euros, Pounds, whatever are backed by nothing but the promise of some government that they would take them as payment.

      Quoting from the Treasury [treasury.gov] of the U.S.

      "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."

      “This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services”

      Ain’t that cute? Any person or organization can demand another form of payment. So tell me, how much is that seashells?

      • (Score: 0) by Anonymous Coward on Friday January 06 2017, @04:51AM

        by Anonymous Coward on Friday January 06 2017, @04:51AM (#450096)

        They could, but unless some other form of payment was specified at the time the deal was struck, they wouldn't be able to sue for non-payment.

      • (Score: 3, Interesting) by dry on Friday January 06 2017, @04:58AM

        by dry (223) on Friday January 06 2017, @04:58AM (#450100) Journal

        The same can be said about gold, gems and such. While they do have some intrinsic worth, it's nowhere close to what people think.
        I once heard an economist semi-seriously argue that the chicken would be an ideal currency. Takes enough maintenance that you won't hoard too much, generates interest in the form of eggs, which if nurtured turn into more chickens and if nothing else, it is always worth a chicken dinner. (The eggs also have intrinsic worth as food as well).