Bet the Farm

Farm Bank, Lordstown Motors, Poly Network, Helix, and a Bruce Willis Update

Farm Bank

Remember Farmville? For those who don’t, it was a Facebook game that allowed players to run a farm, tending crops and raising animals. Many of these activities took time, and the game would let you pay real dollars to speed things up, which was the game’s business model. Farmville was wildly popular in the olden days of Facebook, when people posted game updates in their feeds instead of vaccine disinformation.

Anyhow, in 2016 a kid in Turkey created a game called Farm Bank. It was sort of like Farmville, except people paid real money to raise their virtual livestock, and got money back from the app if they kept them alive:

Spurred on by friends and relatives, who claimed to have received returns on their investments, thousands of people rushed to put their money in Farm Bank.

[…]

Players were also given a small cut of the profits for bringing in new players.

You probably think you know where this is going, and you’re right, but it takes an interesting path getting there:

Riding high on the good publicity, Farm Bank soon went one step further, launching real-life farms.

[…]

Farm Bank went on to weave a complicated, meta-business model: in 2017, the company began setting up deli franchises across Turkey.

[…]

Meanwhile, Farm Bank players received 95% of their earnings in cash and 5% in vouchers that they could use to purchase items from the delis. The company would then pay deli owners a 20% profit on the items players bought with the vouchers. More than 100 Farm Bank delis popped up throughout Turkey.

That’s right, Farm Bank set up real farms! And delis! The app’s founder Mehmet Aydın claimed the real farms were producing goods sold at the franchise delis, which players could buy with their digital farm investment returns. Got all that?

This wasn’t a small time con - Farm Bank collected around $250 million dollars from its users. The unexpected popularity of the app - and its unusual investment schemes - may have been due to the hollowing out of Turkey’s agricultural sector. It was aspirational for players - a return to Turkey’s rich agrarian past:

Though the country’s farms still produce high-quality produce, a variety of factors like global warming, droughts, rising production costs, and the proliferation of power plants have dealt a disastrous blow to the country’s agricultural sector. As a result, Turkey has been forced to import many goods it traditionally produced domestically. 

You can understand why people would embrace the idea of investing in farms and locally grown goods. But, of course, Farm Bank was actually a Ponzi scheme. The farms didn’t produce much of anything, and the goods sold at the delis were bought elsewhere. As the scheme started to fall apart in 2018, Aydın fled to South America with $80 million dollars. The guy he’d hired to code a newer version of his app was arrested and thrown in jail:

Prosecutors argued that [Cudi Cumhur] Yurdakul couldn’t be trusted on bail, and sent him to jail pending further hearings on charges including aggravated fraud, leadership in a criminal organization, violation of tax laws, and money laundering. 

In today’s Turkey, one is often considered guilty until proven innocent. A number of high-profile political prisoners have languished behind bars in what critics say are ludicrous charges. Political or not, many detainees spend extended periods of time behind bars awaiting their trials. Yurdakul spent more than a year in jail before an indictment was even prepared on his behalf.

While Yurdakul was languishing in a brutal Turkish prison, Aydın was driving sports cars and buying yachts in Uruguay. He was eventually tracked to Brazil and, with Interpol closing in, turned himself in last month. He denies owning any cryptocurrency and claims to be penniless aside from a Ferrari and a yacht seized by the police.

Lordstown Motors

The latest headlines about electric vehicle start-up Lordstown Motors are not great:

Shares of the embattled electric vehicle start-up were down by as much as 5.5% immediately following the noon meeting, before closing at a new low of $4.77 a share, down 9.5%. The stock has plummeted about 75% in 2021.

The official meeting lasted about five minutes, followed by two minutes of silence before Lordstown Chairwoman Angela Strand reiterated many of the company’s previously announced plans.

Awkward! So what is going on at Lordstown, to cause it to lose 75% of it’s value? Lordstown went public last October as part of a SPAC deal, and last month the NY Times reported on how it went wrong:

Now Lordstown is flailing. Regulators are investigating whether its founder, Steve Burns, who resigned as chief executive in June, overstated claims about truck orders. The heat is on [David] Hamamoto. The company has burned through hundreds of millions of dollars in cash. Its stock price has plunged to $9, from around $31. Investors are suing, including 70-year-old George Troicky, who lost $864,201 on his investment, according to a pending class-action lawsuit.

And Lordstown has yet to begin producing its first truck.

Ah, the heady days of one month ago, when Lordstown’s stock was at $9 dollars. Basically, Hamamoto had a pile of money in a SPAC and needed to find an exciting start-up to take public. Lordstown seemed like a good bet because EVs are hot, its founder was very convincing, and they got, uh, McKinsey to say the tech worked?

Since he knew little about electric vehicles, Mr. Hamamoto hired McKinsey to assess whether the technology that Lordstown had licensed from others could be put together to build an electric truck, several people briefed on the matter said. The consulting firm said the technology was viable, and the deal came together in weeks.

To be clear, the entire 9-figure deal took a few weeks. Normally, with an IPO, there is a lot of paperwork and legal wrangling and hopefully due diligence. Not so with SPACs! Nor did Hamamoto seem too worried about Lordstown’s management team:

So for a company like Lordstown — which had no revenue and no truck for sale — to succeed, having a management team that could oversee such a complicated endeavor was all the more important. But Mr. Hamamoto didn’t focus much on assessing the work experience of Lordstown’s management team, including Mr. Burns, who would continue to run the company after the SPAC merger, two people familiar with the matter said.

Despite the public success of companies like Tesla, EVs are quite hard to bring to market - just ask Trevor Milton - and it often takes companies years of development to have a product ready for the market. It took Tesla five years to ship its first car! So when Lordstown announced the “rollout” of its first electric truck in June of 2020 there was probably reason to be skeptical:

Mr. Burns was quoted in TechCrunch saying the company already had 20,000 pledges to order its truck and planned to begin producing the vehicle by summer 2021. In November, Mr. Burns said there were 50,000 “serious” orders, and in January the number shot up to 100,000.

And then, in June, this happened:

Lordstown Motors Corp. shares took their biggest one-day drop ever after its two top executives stepped down and the electric truckmaker’s board found evidence of inaccurate statements, dimming the shine of the onetime SPAC star.

Chief Executive Officer Steve Burns and Chief Financial Officer Julio Rodriguez have resigned from the company, effective immediately, the company said in a statement Monday. Burns declined to comment about his exit in a text message.

It is the latest setback for the company, which warned last week it might not have enough cash to fund development of its first truck or even survive the next 12 months if it can’t raise more capital. In March, the startup disclosed a Securities and Exchange Commission probe of its operations after a short seller said its technology was flawed and that preorders for its truck were nonbinding.

Oops! Basically, Lordstown and Burns were saying they had 100,000 preorders that weren’t exactly preorders:

It also found that some of the preorders were placed by ostensible buyers unlikely to have the resources to complete the orders or whose commitments were “too vague or infirm to be appropriately included in the total number of preorders disclosed.”

Anyhow, Lordstown is yet another cautionary tale of what can go wrong when investors buy into an exciting-sounding business that may not be fully baked. Because the company went public, there’s an added layer of legal liability, and now Lordstown will have to deal with a bunch of lawsuits, investigations, and trying to build an electric truck in half the time it has taken any of its rivals. Good luck to them!

Poly Network

One interesting thing about crypto is that it has created new opportunities for people to steal things in creative ways. Also, because crypto prices keep going up, you get to read paragraphs like this:

It is thought to be the largest crypto heist of all time, surpassing the $534.8 million in digital coins stolen from Japanese exchange Coincheck in a 2018 attack and the estimated $450 million worth of bitcoin that went missing from Tokyo-based exchange Mt. Gox in 2014.

Not to be confused with the $4 billion stolen from Africrypt, which I guess isn’t a heist, because the founders just made off with it? I don’t know. The “it” in the above paragraph is the Poly Network heist, which happened last week. Someone found a flaw in Poly’s software, and used it to transfer $600 million dollars’ worth of crypto into their own wallets. However! Shortly after the theft, things got interesting.

Poly Network sent out some tweets asking the hacker to return the funds. And then…the hacker did return some of them? This may have been because researchers had tracked the hacker’s wallet addresses and other potentially identifying information:

SlowMist said in a tweet that its researchers had “grasped the attacker’s mailbox, IP, and device fingerprints” and are “tracking possible identity clues related to the Poly Network attacker.”

Then Poly Network urged other exchanges to “blacklist” stolen tokens, which I guess is a thing they can do? Also Tether claimed it froze $33 million dollars’ worth of its tokens that were associated with the hack.

We talk a lot about crypto - mostly because it’s a constant source of material for a newsletter about scams - but this hack shows some of the new ways the crypto community is dealing with theft. We were told that cryptocurrency is anonymous, but security experts and governments have become quite good at tracking stolen funds. We were told cryptocurrency was decentralized, and yet companies like Tether can apparently freeze funds. It all sounds…a lot like…regular…banking? Contrary to what some people may believe, scams that involve actual money may be harder to track down once criminals are able to get it out of a regulated banking system, like the US. It’s why much of the money recently stolen from the US government probably won’t be recovered.

Anyhow, the Poly Network story gets even more interesting because as of this week the hacker has returned most of the stolen money, and Poly has offered him a job:

The cryptocurrency platform targeted in a massive heist is now inviting the hacker behind it to become an advisor to the firm, and promising a $500,000 reward for the restoration of user funds.

…what? This may have to do with the fact that $200 million dollars is currently locked in an account that requires a password from the hacker to open:

Poly Network has pleaded with the hacker, who it is calling “Mr. White Hat,” to provide the password — known as a “private key” — necessary to retrieve the money.

Oh boy. So what’s the hold up?

It’s not clear why the hacker is withholding access to the final tranche of assets. An anonymous person claiming to be the hacker has simply said they will provide the key once “everyone is ready.”

I cannot imagine what it is like to be sitting on over $200 million dollars’ worth of stolen crypto, with half the digital world looking for you, and having to consider a lucrative job offer from a prospective employer who’s come up with a flattering nickname for you. Also, the hacker might get to keep $33 million dollars’ worth of crypto and…not get in any trouble?

“We fully respect Mr. White Hat’s thoughts, and to express our gratitude, we will still transfer this $500,000 bounty to a wallet address approved by Mr. White Hat for him to use it at his own discretion for the cause of cybersecurity and supporting more projects and individuals.”

Poly Network said it “has no intention of holding Mr. White Hat legally responsible” for the hack.

I don’t know, man. Watching these situations play out on the Internet feels like walking in on something you aren’t supposed to see. Is this how all crypto hostage negotiations are going to go in the future? I hope not.

Helix

An Ohio man pleaded guilty to creating a Bitcoin “mixer” that was used to launder more than $300 million dollars:

According to court records, [Larry] Harmon operated a service called “Helix” from 2014 to 2017 that connected to large marketplaces where drugs and other illegal items were sold. Those markets operated on the dark net, accessible only through anonymizing software.

Before agreeing to cooperate with authorities, Harmon tried out the defense that Bitcoin is not actually money:

Harmon had previously argued that he was not guilty because bitcoin is not “money” as defined by D.C. law, a line of reasoning rejected by Chief U.S. District Judge Beryl A. Howell.

“ ‘Money,’  she wrote, “commonly means a medium of exchange, method of payment, or store of value. Bitcoin is these things.”

I enjoy when defense lawyers make these sorts of arguments. Your honor, my client could not have stolen the money, it was just a bunch of code on a hard drive! I bet Judge Howell did not think she would have to write opinions on monetary theory, but this is the world we live in now.

Bruce Willis Update

We talked recently about geezer teasers and the geezer-y-est of them all, Bruce Willis. He’s found a new, innovative way to get paid for doing nothing:

Here is the commercial, which, sure. Good for him.

Short Cons

NYT - “A new academic working paper released on Tuesday contains an estimate: Around 1.8 million of the program’s 11.8 million loans — more than 15 percent — totaling $76 billion had at least one indication of potential fraud, the researchers concluded.

CNBC - “Japanese cryptocurrency exchange Liquid said Thursday it has been hit by a cyberattack that saw hackers make off with a reported $97 million worth of digital coins.

Wired - “US government regulators are opening an investigation into Tesla’s Autopilot system after cars using the feature crashed into stopped emergency vehicles.”

Tips, thoughts, or half million dollar security consulting job offers to scammerdarkly@gmail.com