Forum Overview :: Tansin A. Darcos's Alter Ego
 
Let's try again on Ponzi Schemes, debt, and what Martha Stewart was jailed for by Commander Tansin A. Darcos 04/01/2015, 8:46am PDT
Excuse my delay in responding to this, I didn't notice someone had made another comment.

blackwater wrote:

Article Title: Ponzi schemes are illegal even if they are honest about their intentions.

Otherwise, every damn fool would be starting one. It's an easy way to make a ton of money.

Wrong. On Both Counts. It's illegal because it's fraudulently undisclosed, and the reason you get a lot of money is the fraud used in obtaining the funds. Failure to honestly disclose the purpose of the borrowing or share sales constitutes fraud. The misuse of the funds not disclosed in the offering prospectus represents a fraudulent transfer of funds.

A Ponzi scheme is illegal because it is an undisclosed and thus fraudulent method of repaying investors with new investors, and is unsustainable. Sooner or later you run out of new investors and the scheme collapses.

It's more-or-less similar to your example of using one credit card to pay off another. However, there is a difference. You don't have to tell your credit card processor for what you are using the money you borrow from them, and if you chose to use it to pay another credit card that's your problem. In fact, a numbler of credit card companies even issue checks to encourage people to pay off higher balances on other cards by borrowing from them and paying their old card off. If you have the discipline to do this or know how to time it right you can often borrow money at near 0% interest rates; it's how I buy a new computer every couple of years. Amazon.Com offers financing for 9 months at 0% interest, then when the teaser rate is about to end, I watch for when a credit card I have is offering a cash advance at 0% for several months, I pay the $10 fee for taking a cash advance, and I'm able to finance $1200 at a net cost of $10 and pay it off over a year. A hundred bucks a month is within what I can afford reasonably.

However, when it comes to borrowing money in a publicly offered investment such as a bond issue (deht) or a stock offering for a company, you (as the debt or stock issuer) are required to honestly disclose the purposes for which you will use money borrowed through the investment offering.

Note that it is extremely common for companies to issue new debt offerings, where they specifically mention the reason they are selling new debt is in order to pay off investors in their old debt. (Which they are required by law to do.) When interest rates are such that you can retire 8% or 10% debt with new 4% debt, it makes a whole lot of sense to do that in order to cut your interest payments. But again, the purpose in issuing the new debt is fully disclosed; thus it is legal to use the new money to pay old investors because no fraud has occurred.

If you disclose what you are doing, it's not illegal to use new money to pay old investors, even if you can't really pay the new investors back. Let's say you wanted to do that. It would cost about $1600 to file the FINRA documents (offering, prospectus, etc.) in your home state to authorize a stock or bond sale. If the sale is for less than $5 million you can file a short and simple Regulation D filing with the Securities and Exchange Commission. Or if you are selling the offering only to residents of one state then you don't even have to register it with the SEC.

Now, if your prospectus fully discloses what you intend to do with the money, that is, to keep 10% of it, repay the old investors twice their money from new funds, and go bankrupt when you can't get any more investors, and you fully disclose this in clear, plain language in the risks section of the offering prospectus, it is perfectly legal. A state regulator = or even the Securities Exchange Commission - can't stop an offering because they think it is ridiculous, is unsustainable, because the proposer doesn't have enough experience, or for any other reason other than failure to disclose all potential risks, material misstatements or under reporting, or lying on the prospectus and offering documents.

As long as you fully disclose what you are doing and hide nothing, you can set up any kind of financing scheme or system you can dream up. But nobody is seriously going to invest in a publicly announced Ponzi scheme, But if you fully disclosed what you were doing as part of the prospectus supplied before the person invests, it would be perfectly legal. The state and federal securities laws, FINRA regulations and SEC regulations are designed to ensure the investor is told of all risks in the investment and all hazards and possible trouble; these rules and regulations are not designed to prevent investors from acting stupidly if they choose to do so knowing what they are getting into.

It's like something I pointed out about "Payola," the scheme where a record promoter pays a DJ (or a station) to play a song. 41 USC ยง 317 makes it a crime for a broadcast station or personality on such station to broadcast a song where the promoter of the song or some other party has paid them to do so unless the station or promoter announces before the song (or any other paid program material) is broadcast that they were paid to do so. Hidden payola is a crime; announced payola is perfectly legal.

blackwater wrote:

I am glad you are not paying credit cards with credit cards. That is a bad path to be on.
For most people it would turn out to be "debt slavery" where you barely make the payments and you have trouble making ends meet. It may be useful in extreme emergencies, but far too often people end up getting trapped in mounting debt because they don't watch their spending. I manage my personal debt properly because in this day and age if you don't carry some debt you look like a terrible risk.

Be responsible and you are unlikely to be able to get credit. Live within your means, pay your bills with cash, save up for what you want to buy, and guess what? You will have a horrible time getting credit! But owe some money over time, pay your bills on time and show you manage having credit, and you have an excellent opportunity to get into even more trouble by being able to borrow even more money!

It depends. For normal people, who just simply want to live an ordinary life and don't want to be listening to the phone ring from creditors not being paid and getting dunning notices for unpaid bills, it's not a good idea. If you find that sort of thing fun, then more power to you. One of my associates had a line he saved for really nasty bill collectors who called him, because of a quirk in the rules.

It is a violation of Federal and State law to call someone for harassing purposes or to use profane or obscene language in such a call. But note that this only applies to the caller, not to the called party, You can legally be as nasty, abusive or as obscene as you want to the caller if they call you.

I never had to he this nasty and I don't think I'd have the guts to use it, but the line he had - especially if the bill collector on the phone was female - was, "I don't care how nicely you ask me I'm not going to let you suck my dick."

If you have enough credit to finance your lifestyle without having enough income, and you can get away with it until you die, then it doesn't matter. Michael Jackson was, to some degree, doing this; his Neverland Ranch was heavily mortgaged and (as I understand it) at the time he died he was preparing to do another tour to raise the money to cover his (substantial) expenses.

The U.S. Government is essentially doing this with the national debt, Social Security, Medicare and many other federal entitlement programs. It keeps borrowing money to cover the amount it spends above and beyond taxes. Why do you think the national debt balooned from US$5 thousand billion ("5 trillion") to (approximately) US$14 thousand billion dollars between the start of the Bush Jr. Administration and the current debt level of the Obama Administration? Bush Jr. spent the surplus that Clinton left him and ran 8 years and two wars on tax cuts and borrowed money, colloquially "putting the wars on the credit card." The Republicans do not think that we should raise taxes to pay for the wars that Bush ran up huge debts to pay for, or that they continue to approve when Obama keeps them running.

Credit financing of one's lifestyle only works until you can't raise more credit. At that point either you, your creditors, or both end up having to face the results. If you've got protected assets and / or income that your creditors can't seize, you might come out of the disaster okay, albeit with a reduced lifestyle. But your creditors are going to pay for your profligate spending habits. In very rare cases the creditors can find enough to seize to pay what they are owed, but usually the creditor takes some losses on debt financing. This is part of the reason - the other part being sheer greed (which there is absolutely nothing wrong with) and because they can get away with it - that credit card debt financed monthly generally costs rates north of 18% annually, or 1.5% a month.

This is one reason if you are married or with a live-in partner your house should be in one name, not both. This way, if anything goes wrong such that they have to walk away from their mortgage or have a foreclosure, the other spouse's credit isn't damaged and they can use theirs either to buy another place - hopefully less expensive so they don't get into trouble - or at least be able to rent a place, You can also use this strategically so that both can use the "first time homeowner" tax exclusion. But all of these benefits are unavailable if both of you are buying the place.

blackwater wrote:

Remember, cooking vids didn't keep Martha Stewart out of jail!
Again, you dIdn't read what I wrote. Martha Stewart never was tried, convicted or sentenced for anything to do with the insider trading business she was involved in. Martha Stewart went to jail because of breaking the first and second rule to use when asked questions by the FBI or police: (1)Keep your fucking mouth shut. ESPECIALLY if you've done something you know is illegal. (2) If you are going to (be stupid enough to) tell them something, don't say anything they can prove you're lying about, because that in and of itself is a crime even if they can't nail you for what they think you might - or might not - have done. Had she simply referred them to her lawyer or refused to say anything - except maybe "You know, that FBI car would look much nicer in a pastel paint job." she very likely would have done no jail time at all
PREVIOUS REPLY QUOTE
 
Paying bills is easier if they mail you one by Commander Tansin A. Darcos 01/16/2015, 3:02pm PST NEW
    Outstanding! by Grebble 01/16/2015, 3:27pm PST NEW
    Did plastic really win, or paper? Sounds like you want them to mail you a bill. by dr. no 01/16/2015, 11:14pm PST NEW
        Re: Did plastic really win, or paper? Sounds like you want them... by Commander Tansin A. Darcos 01/17/2015, 8:25am PST NEW
            And yet, credit cards bills need to be paid with cash. Or checks / debit cards NT by ... checkmate (Jeff Goldblum voice) 01/18/2015, 1:56am PST NEW
                Wrong, Credit cards can b paid w/out checks, cash or debit cards, I do it myself by Commander Tansin A. Darcos 01/21/2015, 1:36pm PST NEW
                    I think you know what he mea-- oh, right. NT by new here sorry 01/21/2015, 3:27pm PST NEW
                    So you're running a pyramid scam? by paying credit cards with other ones 01/23/2015, 10:21pm PST NEW
                        It can't quite happen with him by Ice Cream Jonsey 01/23/2015, 10:25pm PST NEW
                        You might try learning to read first before making comments by Commander Tansin A. Darcos 01/27/2015, 10:11pm PST NEW
                            Ponzi schemes are illegal even if they are honest about their intentions. by blackwater 01/28/2015, 1:24am PST NEW
                                Let's try again on Ponzi Schemes, debt, and what Martha Stewart was jailed for by Commander Tansin A. Darcos 04/01/2015, 8:46am PDT NEW
 
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