I Listened to a Pitch for a Possible Bitcoin Scam So You Don’t Have To
What would you think, upon answering a phone call, if you heard, “How would you like to make 21% on your money, guaranteed?”
You would probably wonder, “Hmm, sounds interesting, so what’s the catch?” Or, you might think, “Wow! Sure! How do I get in?” That’s what scam operators are banking on — you falling for a way to get a return on your money that no one else is offering.
As a legal affairs columnist, I had to listen to the pitch instead of hanging up, because no doubt lots of people were hearing the same song. So I replied, “Tell me what you’re offering and why it’s not a Ponzi scheme.”
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Let’s take a moment to remember Bernie Madoff
This potential scam resembles a Ponzi scheme in that the “guaranteed” high returns are unrealistic. The largest Ponzi scheme in U.S. history was run by Bernie Madoff, who took investors’ money, promising steady returns. Instead, he defrauded thousands of people out of an estimated $65 billion over about 17 years, paying early victims with money from later victims until it all came crashing down in 2008. Many lost their entire life savings. There were suicides. Madoff died in prison in 2021.
Iggy delivers his pitch
“Mr. Beaver, I’m sure you are well acquainted with the digital currency bitcoin,” “Iggy” began, launching into his pitch. “I work for a digital asset creation organization based in Austin, Texas, where we mine bitcoins with powerful computers. We arrange for you to buy computers that we lease from you and use them to mine cryptocurrency, paying a fixed and consistent monthly cash flow. After five years, we buy back the computers for what you paid. We make our money by selling the bitcoins that your computers generate.”
As he was talking, I was thinking, Hang on, the price of bitcoin has never been stable, so how can they guarantee a 21% steady return? And why do they need me to buy their computers? Why don’t they just use them themselves, for free, to mine bitcoins?
Beautiful advertising material: The pressure begins
I asked for, and Iggy agreed to email me, documentation on his company, which arrived in seconds. The materials are as smooth as a newborn’s behind, describing company philosophy and how the purchase-leaseback works and showing photos of the contracts customers sign (though the contracts shown are not readable).
It was clear to Iggy that I just didn’t understand this new world of digital currency. The following day, one of his managers phoned. Over about half an hour, I listened to a polished explanation of why something I could not touch was the next greatest thing. “Look at the online reviews. They are all excellent,” he boasted.
Most were, but great reviews can be purchased, as I discussed in my article Can You Trust Online Reviews? Apparently Not Much.
“Well, it is obvious that you are old-school, Mr. Beaver,” Iggy’s manager said. “I’ll bet that years ago if someone told you about an investment in cellular networks or Wi-Fi, you would have had the same skeptical attitude,” he said in a condescending tone of voice.
I replied, “Not at all. My concern here is about how unrealistic your guaranteed return is for a currency that is notoriously volatile. But I do appreciate your call.”
Request from a reader and former client
I thought that was the end of it, but the next day, a reader and a former client called our office to ask if I knew anything about this same company. They both had received similar sales calls and asked if I would review the company’s contracts for them. The reader is a fairly well-off retired pharmacist, but my former client sustained a brain injury in an accident and receives monthly checks from an insurance settlement. He wondered if it would be a good idea to cash in part of the annuity and invest.
So I called Iggy and requested a specimen of their contract to review. And that led to an interaction worthy of a Saturday Night Live skit.
The same manager phoned and explained that everything is “Docusigned” online, so there is no sample contract available.
“Oh, so you can’t just run off a blank one?” I asked.
“No, we only process a contract after you become a client of ours and are ready to invest.” But the kicker was something that I had never thought of: “And besides, we will not have any computers to sell until November.”
“Really? What does that have to do with sending me a sample contract?”
He did not answer.
So, is this a scam, or is it legit? I do not know. But anytime someone wants me to invest, lease a building or establish an ongoing financial relationship, I want to see their contract and have it reviewed by my financial adviser and CPA. If that request is refused, then my answer is no!
Here are some things you can do to avoid falling for a scam:
- Always ask questions
- Don’t feel pressured
- Consider whether what you’re being offered is logical/realistic
- Request a sample copy of the contract to show to your financial adviser or lawyer and follow their advice on whether it’s a good deal or not.
Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.
