An online game called “Farm Bank” is being investigated as a pyramid scheme that is operating under the guise. I’ve heard it’s somewhat similar to the game FarmVille, a farming simulation game that was hugely popular earlier this decade. Just like FarmVille, players in Farm Bank plow land, plant and harvest crops, and raise livestock. The difference in Farm Bank is that players have to invest actual cash. Mehmet Aydin, the 27-year-old developer of the game, says Farm Bank is just a classic, online virtual game. He created the game in 2016 and says he was completely shocked at how popular it’s become. So how did a 26-year-old man establish such a lucrative scheme right under the public eye? With an insidiously innocent-seeming first step. You can become a member for free, but you start making a profit when you make the game “real,” meaning you spend money to buy virtual animals. An estimated 500,000 people signed up as members, while around 80,000 invested money totaling close to $150 million. The latter believed they were actually buying animals with the money they invested in the game and that their returns were the profits of a real farm. Aydin says the game has paid $103.8 million to players but authorities believe the payments are only possible due to the increasing flow of participant money. Basically, the classic definition of a pyramid scheme, also often referred to as a Ponzi scheme. The fraudsters behind these type of schemes generate returns for existing investors through revenue paid by new investors rather from legitimate business or investment activities. Obviously, this scam can only continue if there is a constant flow of new money. When they run into problems recruiting new money or a large number of existing investors cash out, the schemes collapse. In doing research for this story, I was very shocked to find that these scams are actually pretty common. There was one making the rounds recently on Facebook called “Friendsgiving” that state officials in Montana issued a warning over. It involves encouraging friends to buy into the bottom of a pyramid for $100. Once the pyramid is filled up with new participants, the person at the top takes $800. The two people at the second tier of the pyramid each become the top of two new pyramids, and the process repeats. Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp speculation scheme. The Italian con artist promised investors a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. Ponzi was really just using new investor money to pay older investors. The scam lasted for about a year before it collapsed, costing unwitting investors over $20 million. Ponzi wasn’t the first, though. It’s believed he actually came up with his postage scam based on a scheme carried out by a Brooklyn bookkeeper in 1899, which is also thought to be the original pyramid scheme. William Miller operated a business called the “Franklin Syndicate,” in which he promised 10% interest on contributions each week. Miller — who was nicknamed “520 percent” due to the remarkable rate of returns he promised — claimed that he had an inside window into the way that profitable businesses worked, but in the end, he defrauded investors of $1 million – approximately $27 million in today’s dollars. Another famous scam occurred in 1910. Charles Deville Wells, the inspiration behind the famous song “The Man Who Broke the Bank at Monte Carlo”, operated a phony bank that promised outlandish returns of 1% a day. About 6,000 investors were swindled out of what equates to about $9.5 million today. (Sources: Bloomberg, Wikipedia, Time)
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