I've thought of a highly unethical money making scam. But would it be illegal?

In My Humble Opinion
1

It goes as follows:

I start a website that features two things, the KellyBank and the KellyShop.

On the KellyBank website, you can create a KellyBank account for free.

The only type of currency that you can hold in a KellyBank account is a KellyCoin. You can have anywhere between zero and an unlimited number of KellyCoins in your KellyBank account at any given time. There are two ways to obtain KellyCoins. One is to purchase them (using real currency) from the KellyBank, at some exchange rate set by the KellyBank. The other is to have them transferred in to your account from another KellyBank account. There is no transfer fee for transferring KellyCoins from one user’s KellyBank account to another.

From where do these KellyCoins get their value? Why would anyone purchase or try to obtain any KellyCoins?

Also at this site is the KellyShop. The KellyShop sells an extremely popular item that has a very consistent price across most markets. Let’s say the latest iPad meets this criteria.

The only currency accepted by the KellyShop is KellyCoins.

For argument’s sake, let’s say at the time this new service launches, the KellyBank sells KellyCoins at a fixed rate of $1 each. Eg, $US1 = KC1.

This still doesn’t mean anyone will care to obtain/purchase KellyCoins.

Let’s say the new iPad is retailing for $600. The KellyShop will list the new iPad for KC500. So, if a user wanted to obtain a $600 iPad for $500, they could set up a KellyBank account, purchase 500 KellyCoins from the KellyBank at $500, then purchase the iPad from the KellyShop for KC500.

Ok, I agree that KellyCoins would now have a real value in the minds of the consumer, but your site is going to lose money fast, you’re a taking a $100 hit on every iPad you sell. The only person getting scammed out of money so far is you, the site operator. Won’t take long before you go bankrupt selling iPads at below cost price.

Not so fast. While customers would be free to purchase as many discount iPads as they like, I control the supply of KellyCoins, and I can track where any KellyCoin is at any given time. I will ensure there are never enough KellyCoins in circulation at any given time such that a “run” on the KellyShop would bankrupt me. I do this by limiting the number of KellyCoins that can be purchased from the KellyBank.

The system continues operating for a while. Occasionally I reopen the KellyBank, then close it off again before too many KellyCoins are put back in circulation.

So I do this for a while, taking a loss on every sale, to build up “buzz”. Then comes the next crucial, and final step.

The KellyBank reopens and begins selling KellyCoins. Except this time, I don’t put a limit on the number of KellyCoins that can be sold. And in the way it would play out in my head, boy, do I sell some KellyCoins. Hundreds of thousands. Millions. I become an instant millionaire.

END GAME 1:
Let’s say the KellyShop subsequently gets a cumulative order for 10,000,000 iPads. I wait a week or two, then “refund” everyone’s KellyCoins, with an apology. Sorry - not enough iPads! Here, have your KellyCoins back.

END GAME 2:
When I reopen the KellyBank and start selling KellyCoins with no limit to the number I am willing to sell, I close the KellyShop. “Down for maintenance” or something. After I’ve made millions selling KellyCoins, I reopen the KellyShop and sell a few iPads to the first few customers who make it, then I put a notice “Sorry, sold out”. And stop selling them.

Both end game scenarios finish with me on a yacht somewhere in the Greek Isles, living the life of a rich playboy, with a bevvy of bikini-clad beauties satisfying my every desire.

So… unethical? Abso-flippin’-lutely.

Illegal? And if so, which part?

2

It is clearly fraud:

You are quite clearly designing a system in which consumers are expecting a certain benefit (investment in this alternative currency will yield savings on certain retail purchases) only to find that the system is manipulated without the consumer’s understanding for the principal purpose of getting money without returning anything to a large number of people.

And once you gather up the cash that has been sent to you and head off to the Greek Isles, it would likely be embezzlement, too.

3

I don’t agree it’s embezzlement. (You’re right on the fraud, of course).

But the elements of embezzlement are:

(1) an unauthorized
(2) conversion
(3) of the personal property
(4) belonging to another
(5) by a person who has lawful possession of that personal property

The US dollars are no longer property of the website’s clients They were exchanged for Kellycoins.

4

Criminal law hinges on intent, it doesn’t matter what loophole or technicality you think you’ve found if you enter into it with the intent to defraud.

It is like saying you have an ingenious plan that makes shoplifting legal, by taking the items into the toilet and hiding them in the trash and you will wait until later to retrieve them from the dumpster outside, it is legal because you didn’t leave the store with them. It isn’t remotely legal.

5

Yep, illegal in my non-lawyer opinion. But it is rather clever and might have a chance of working. That is, you getting a bunch of money. The getting away with it in the long run not so much. Reminds me of a cute short story where a guy comes up with a dozen? legal ways to rob a bank. He tells the banking system he is going to publish a how to book on it. They freak out and he slowly reveals each method to them and agrees to not reveal it in exhange for large sums of money. When they finally learn method 11 he tells them its all wrapped up. They ask what about method 12. He replies with something like “thats what I’ve been doing the whole time”.

6

Ask Bernie Madoff. It is effectively a Ponzi scheme, using later investors (buyers of KellyCoins) to cover the investments of the earlier investors, with no way for the later investors to recover value.

Plus you have just demonstrated intent :wink:

Si

7

How does this differ from other forms of scrip, like “Calgary Dollars” or “Toronto Dollars”, other than in intent?

8

It’s not necessarily different, except in intent. But crimes, most kinds of fraud, for instance, can be based on intent. And this scheme is pretty clearly intended to defraud the ‘customers’.

Depending on what the jurisdiction ends up being, there might be more specific laws about advertising items for sale that you have no realistic expectation of actually being able to provide, and so forth. But I think some form of fraud will almost certainly cover it.

9

But the thing is, he never actually promised anyone that discounted items purchasable only with KellyCoins would continue to be available. What he’s doing is creating a bubble in the perceived worth of KellyCoins. I have no doubt that back in the pre-regulation days functionally similar schemes were done with stocks, which have since been outlawed; but unless you can make the case that there was an “implied” promise, I’m not sure it’s fraud.

10

It would seem that people who buy Toronto Dollars understand that that scrip can be exchanged for goods and services, and that 10% of the value of the currency used to buy the scrip will be used for charitable purposes. Everyone’s clear on what the deal is.

In the OP, the scheme involves enticing people to buy scrip that, only if someone is lucky, will be able to be used to purchase goods. The seller is clearly hiding key facets of his “business plan” from the customers, such that if the customers knew of the whole business plan, they almost certainly wouldn’t buy the scrip. That’s not just a difference in intent that you describe, that’s a substantial misrepresentation of the whole scheme.

I think I explained my thought on this point poorly. Notionally, the KC are something of value because they are being represented as being transferable for iPads, and it isn’t clear to me whether KC could also be exchanged back for cash. If the whole scheme shuts down and the OP “takes” the KCs with him and leaves the customers holding an empty bag, I would have thought that would be embezzlement… But I defer to your expertise.

11

Of course it is fraud. He is misrepresenting the business in order to take peoples’ money, and not return anything to many of the clients.

12

As in all things, Apple was there first.

(more generally, there’s a pretty wide range of “gift card scams” that have been brought to court that are variations of the OP’s scheme. The Apple version was relatively innocuous, but was the first one I found an article for on Google).

13

I don’t think this scheme is a ponzi or a stock bubble sorta thing. It appears to be a mechanism where the OP actually invests a large sum of money into it to cover the losses. However these losses create massive demand. Which at some point encourages large numbers of people to send the OP a bunch of money. At which point he basically just runs with it.

14

Where exactly did he misrepresent it? By splitting the scam business into two parts it’s hard to say just where a fraudulent promise comes in. KellyBank promises nothing but that it will sell you KellyCoins; and KellyShop promises nothing but that as long as it’s in business it will take KellyCoins for discounted items. Again, I’m sure that this is illegal somehow, but does it meet the legal definition of fraud?

15

I say you open up the two shops under the names Kelly Social Coins and Kelly Applied Market. That way, when you combine the two into one website, you’ll have the ready made name of KellySCAM.

16

I think the idea that anyone would believe that the right hand of KellyCo had no idea whatsoever what the left hand of KellyCo was doing, so as to absolve the sole proprietor of KellyCo from any criminal liability, is utterly preposterous.

17

I see your thinking, but no – “conversion” requires the more than simply folding your tent and thereby making Kellycoins valueless. Presumably, the “Kellycoins” still exist; they simply have now more value. That’s not conversion.

18

I’m pretty sure it’s illegal somehow, although I’m not sure how. It’s the sort of thing that’s not automatically illegal, but has often been made illegal at some point when someone else did something related.

It also sounds similar to http://www.sec.gov/answers/pumpdump.htm pump and dump scams: you’re selling the iPads purely to promote a false impression that the coins are worth something in the future, which may be some sort of fraud.

Conversely, things that are scams on small scales sometimes turn out to have been common in stock market manipulation, so if you were an investment bank, you might be able to do the same thing to a real stock, and bury it under a mountain of paperwork plausibly claiming you had some other reason for overbuying coin-stock and then stopping suddenly when a rush happened.

19

No problem. Just make sure that the arm that actually takes the money does return something of notional value, distinct from this other business which was also temporarily accepting KCoins.

Suppose that, in addition to “spending” their virtual KCoins at the KStore, customers can receive them from KBank as physical medallions or certificates, which of course KCompany stamps out cheaply.

In fact, make sure that this business, selling these souvenir trinkets, is legally established first. Customers can keep these physical KCoins and admire them, or trade them with each other, or–as long as KBank remains in business–“deposit” them back to their “accounts.” What a fun game!

Now, with KStore is in business, very few people are going to make “withdrawals.” But the option is always there… and the fine print in the KBank agreement does say that if that business should close, all customer will receive their “balance” in the physical form, because of course that’s what they were buying all along. The “spending” of it for real things at KStore was a separate, later, temporary, bonus proposition.

KStore shuts down first. Perhaps there is an interval where KStore is merely “out of stock” but KBank is still selling its trinket coins, which after all have always been a product unto themselves. Then, KBank announces its imminent closure and ships out all the souvenir medallions its customers have purchased.

Thanks everyone! Keep enjoying your KCoins!

20

It’s clearly fraud. People are only buying Kellycoins because you deliberately represented to them that Kellycoins can be exchanged for iPads. You then intentionally ensured that Kellycoins would be worthless, and refused to refund the money of people who purchased the Kellycoins. There are numerous criminal and civil actions that could be taken against you if you ran a scam like that.