I Wrote A Popular Piece On ‘Lessons From The Madoff Fraud,’ Then I Got Scammed — Here’s Why

I haven’t always been easily fooled.

In November 2007 global media widely reported news of the Amanda Knox ‘murder.’ Purportedly, Knox, a young college transfer student, from Oregon to Italy, had murdered her female roommate in an Italian apartment due to a jealous rage over a sexual tryst, a ménage à trois, gone wrong. I told anyone who would listen at the time that she was innocent. The media had tried her and found her guilty early on — most people rolled their eyes at me in disbelief.

Cut to, seven years later. After four years in custody, multiple best-selling books analyzing her case, and global debate over her guilt or innocence, the Italian Supreme Court, the highest court in Italy, not only declared Knox (as well as her ex-boyfriend) ‘not guilty’ — they gave her a rare ‘full exoneration.’ They declared that there was no way she could have committed the crime because the weight of the evidence clearly impugned someone else.

Later, I wrote a widely read article picked up by Zero Hedge in 2015 predicting that hyperinflation would not occur in the United States for many years, against the raving of radical pundits and over one hundred Zero Hedge critics who pummeled me with derision for my ‘ignorance’ (that was the nicest word they used). While we watch Venezuela in chaos, we are still waiting for that American ‘collapse.’

A couple of years later, I wrote a popular piece, The Bernie Madoff Fraud: Five Lessons For Investors From The ‘Wizard Of Lies,’ that was picked up by Real Clear Markets and several other trafficked websites. It suggested five clear ways to protect yourself from a con in the investment arena.

I share all of this as evidence that I have had discernment in the past — even when the odds were stacked against me. I’m also a seasoned investor who is at least aware of what to look for in a con or a fraud.

None of this protected me from a recent, probable cryptocurrency scam. In this piece, I dissect the reasons why.

DIG/Arbitrade Purported To Be A Scam

DIG is still a crypto coin offered for sale by the company Arbitrade, (and related company, Cryptobontix), one of over 2000 coins in the cryptocurrency space, a known speculative investment arena. It is widely understood that the crypto arena as a whole is much like the ‘wild, wild, west’ and that anyone investing risks losing everything. Alternative coins like DIG are considered even more risky.

DIG was marketed as one of the first ‘stable coins’ — long before that term was even ‘coined.’ In a space where value was debatable, each DIG token (or coin) was to be linked to $1 in gold bullion, setting a concrete floor on value. The DIG price quickly rose from a few cents to a high of $.28 on the Livecoin exchange. True value was thought to be north of $1.00.

Arbitrade/Cryptobontix plans abounded in late 2017: a comprehensive cryptocurrency exchange, quick release of the token to multiple crypto exchanges, proof of gold backing, etc. By the end of 2018 investors were still waiting at the end of a long line of broken promises. Some investors had lost most of their net worth betting on the coin.

Analyst Ronnie Moas, who passionately backed DIG in the beginning, did a sudden reversal in the period from November 28th and December 18th, 2018, and zealously came out against Arbitrade, labeling most of the executive team as ‘frauds.’ He has since filed complaints with the SEC, FINRA, the FBI, and Canadian authorities.

According to one article “[DIG had} price targets of $0.40 by the end of 2018. Meanwhile, the value of DIG eroded from $0.28 in May to less than $0.01 over the year — an over 95 percent decrease. [Crypto Analyst Moas would subsequently] call the founders of Arbitrade fraudsters and crooks and berated them on a near-daily basis over social media.”

It is still not certain that DIG/Arbitrade is a scam, but it seems more and more likely. Moas has described his certainty at about 100%.

How Did I — And Other Investors — Get Scammed? 5 Lessons

One — Don’t ignore your intuition.

Without impugning Ronnie Moas, the analyst who initially recommended it, whom I have absolved of wrongdoing elsewhere — I never should have listened to his advice on DIG. Jesus — yes, that Jesus — makes a statement recorded in the New Testament that I’ve been thinking about recently:

“Take care what you listen to [emphasis mine]. By your standard of measure it will be measured to you; and more will be given you besides. For whoever has, to him more shall be given; and whoever does not have, even what he has shall be taken away from him.” (Mark 4:24–25 NAS95)

My first mistake was listening to the wrong advice. But, how do you know you are listening to the wrong advice, you ask? With me it was that little voice inside of me saying that I’d be better off taking my own counsel. When you’re a nice Southern boy who’s been raised to consider other people — and other people’s opinions — before your own this is a hard habit to break.

Intuition is many times easy to ignore and difficult to follow. Especially for those who have grown up learning not to trust it or who tend to rely more on intellectual analysis. Bottom line: Be careful who and what you listen to. It is always your responsibility — especially when you ignore your own intuition.

Two — When someone is getting inside information, recognize their objectivity has been compromised.

Obviously, inside information is illegal in the regulated space of stocks and bonds. Speculative investments like crypto are different.

If Moas was the only advisor recommending DIG should that have been a red flag? This is a hard one to analyze. In a speculative space like crypto it is not unusual for one or two people to have relationships that gives them inside information on an unfolding opportunity. If you have a relationship with an analyst, you tend to trust the analyst more because other information is not widely available.

That said, were there red flags in Moas’ behavior that should have tipped me off that something was wrong? No. Yellow flags (see below)? Possibly. He was overly passionate at times, going so far as to ‘strongly exhort’ (some might even call it ‘bully’) a DIG holdout among 20+ subscribers that showed up at a Los Angeles meeting in early November 2018. But other than this one instance I would say that he was passionate to a fault — he was excited about what he thought was a legitimate opportunity because he was sucked into the scam as well.

Three — Recognize when the mystery is just too much.

This category includes when there are many more questions than answers and when multiple promises have been left unfulfilled. It also includes too many ‘yellow flags,’ those things that aren’t obvious enough to be red flags, but are still disconcerting or leave you with a vague uneasy feeling.

One of these ‘yellow flags’ was not being able to find information on all of the principals’ background that looked stable and made sense.

Check FINRA and the SEC for background and securities violations on key players. Even those in the crypto space may have information on them because a lot of the players came out of traditional financial backgrounds. However, sometimes information does not show up on principal players until later — or the principal players change as the project develops, and they need to be continually re-checked.

Another ‘yellow flag’ is questionable statements, even if they are isolated and made in the context of reputable, reasoned information and advice. For example, someone seeking investors tells them that he and his family and friends have everything they own invested in the asset and ‘suggests’ (on any level) that they should do the same.

At a November 2018 meeting in Los Angeles newly appointed Arbitrade COO told 20+ investors that he and his family and friends had everything invested in DIG and everyone at the meeting should do the same. According to him, everyone invested in DIG would ‘have a very good Christmas.’ His words exactly. As of Christmas Day 2018, DIG was at $0.004, or less than 1/2 cent per token of the promised windfall that was supposed to lead to a price above $1.00 per coin.

It turned out the new COO’s SEC bio was full of big question marks.

Four — Know what investment space you’re in and the risk.

Speculative investments are not the same as the traditional investment space of stocks, bonds, mutual funds, ETF’s and the like. The traditional investment space is regulated, the cryptocurrency space is still evolving relative to regulation and more wide open — like the wild, Wild West.

The crypto space is still largely unregulated. For example, the Commodities Future Trading Commission (CFTC) recently said this:

“Customers should know that these frauds have evolved and are prevalent online. Even experienced investors can become targets of professional fraudsters [emphasis ours] who are experts at deploying seemingly credible information in an attempt to deceive.”

According to the source, the CFTC has set up a whistleblower operation with rewards of between 10–30% to anyone who can provide credible leads to “monetary sanctions” of $1 million or more.

Five — Diversify and limit your investment.

Fortunately, because of my experience investing elsewhere, I knew this and therefore limited my total investment to cryptocurrencies to 1% or so of my net worth.

I diversified among all of the cryptocurrency opportunities I invested in, as well as among the crypto exchanges where I held my investments. My investment in DIG was an even smaller percentage, though could have been significant if the investment had worked out. That alone saved me. Others were not so fortunate.

You Believe What You Want To

According to Malcolm Muggeridge, the late English journalist, “People do not believe lies because they have to, but because they want to.”

To this day, I look back on the November meeting in which the new Arbitrade COO spoke for about twenty minutes. Except for a couple of questionable statements — which I know now I should have picked up on and examined more critically — he ‘seemed’ and acted like a reputable guy. I can only conclude now that he is likely a seasoned con man and a sociopath. That is the only way to describe someone trying to separate anyone from their money in order to line their own pockets.

At that point, many of us were already invested and we ‘wanted’ our investment to work out. We were more likely to believe someone who dressed and acted the right way and seemed to still have the confidence of a respected analyst.

DIG was recently at $.007846 with a market cap of about $4 million and ranked 530 out of about 2300 crypto’s. In my opinion — and it is only that — DIG and Arbitrade/Crytobontix is a con and a scam, one of many that have come out of the Wild, Wild West of the Crypto space.

Seaborn Hall has a degree in management from Georgia Tech, two masters degrees in theology and has studied at the doctoral level. He has diversified holdings in the crypto space, including Bitcoin and others. Formerly he was a regional director at a national top-50 RIA; he currently manages a family investment company, writes, and publishes Common Sense Interpretation.