Charles Ponzi built his eponymous schemes on the promise of profits tied to postage stamps.
But ours is a decidedly high-tech world, where fortunes are made and lost – and in the case of bad doings, unwitting victims parted from hard-earned cash – through bits and bytes.
The cryptocurrency realm may have fallen short, thus far, of its promise to transform commerce, to kill hard currency and to render central banks obsolete. But cryptos have done a great job of acting as conduits to all sorts of fraud. From ICOs that took in money (millions!) but delivered no tangible products to bitcoin that vanishes from wallets stored online, the bad guys find these digital offerings, in all their flavors, as irresistible as the speculators who buy them.
The news came this week that the Securities and Exchange Commission (SEC) and other regulators have looked into, and stopped in its tracks, a $30 million Ponzi scheme that was built around a cryptocurrency scam tied to diamonds.
In terms of the details reported by The Wall Street Journal and as noted in a complaint with the SEC, Argyle Coin, based in Florida, had offered investors the chance to buy into cryptocurrency backed by diamonds. A temporary restraining order has been granted by a federal judge with asset freezes mandated against the defendants, a roster that includes Jose Angel Aman (the principal behind Argyle), two companies he owns – Natural Diamonds Investment Co. and Eagle Financial Diamond Group – and two individuals with interests in those firms, Harold Seigel and Jonathan Seigel.
The Seigels are allegedly involved in the Ponzi scheme, and a lawyer speaking on their behalf said they deny any wrongdoing or participation.
The alleged Ponzi scheme traces its genesis to May of 2014, with the initial approach by Aman to get investors to put funds in the aforementioned firm, Natural Diamonds. Those funds, he said, would in turn be invested in acquiring, refining and reselling diamonds – with 24 percent profits and return of principal within two years.
But, allegedly, true to Ponzi structure, new investor funds went to pay prior investors their promised returns. The same model held true for Eagle Financial Diamond Group. And then came Argyle Coin, which in 2017 was pitched as a crypto backed by those diamonds. The investor money would develop cryptos, as the Journal reported; the risk was nonexistent, because, well, diamonds.
But Argyle apparently has none of the diamonds, per allegations, and Aman had been using the crypto funds to pay investors who had ponied up for the diamond companies. The SEC said Aman and the others have used $10 million for expenses like rent, horses and riding lessons.
The SEC, said the Journal, has charged the three companies and their owners with federal securities law violations. Aman and the firms were also charged with violations of antifraud provisions contained within federal securities laws.