$7 Million "Triple Algorithm" Ponzi Scheme in Colorado

Daniel Drew,  7/2/2015


The public is becoming increasingly aware of how profitable high-frequency trading can be, but unfortunately, they remain oblivious to how fraudulent it actually is, which explains why a Colorado woman was able to raise $7 million by touting her dubious "triple algorithm" investing scheme. She called it a "lifetime income plan" that could deliver annual gains of 700%. At this point, some may be wondering if these "investors" deserved to lose their money.

As reported by Ponzi Tracker, Kristine Johnson of Aurora, Colorado was charged with one count of wire fraud conspiracy. Johnson has agreed to plead guilty to the charge, and could face up to twenty years in prison. Here was Johnson's pitch:
How are we a lifetime income plan? It's simple. Every $50 position you purchase, you make $400. With two positions, you make $800. With five positions, you make $2,000. Want to go bigger? With twenty positions, you make $8,000. With one hundred positions, you make $40,000. This is limitless.
How did Johnson come up with this miraculous "triple algorithm?" Does she have a Ph.D? Did she work at a hedge fund? Johnson explains,
I thought, what can I do, what can I make, what can I design, that has only what works and none of what doesn't, and one day, honestly this is what happened, I just saw it. I just saw it in my head. This matrix is 3D, which is why we can't put it on paper. It's a triple algorithm. And I can't for the life of me tell you why I could figure that out in my head. But I could.
I don't know about you, but I'm convinced. Perhaps we should persuade her to license her algorithm from jail. Meanwhile, in the actual high-frequency trading world, triple algorithms are generating IPO windfalls and 29% profit margins. By scaling the front-running business model, Virtu Financial has only lost money on 1 day over the last 6 years.

Virtu Financial

So the $7 million triple algorithm ponzi scheme gets shut down, but the real quant factory raises over $350 million in an IPO, while still retaining majority control. This just continues the pattern of authorities pursuing the small fish while ignoring institutional violations. Nav Sarao supposedly manipulated the largest stock index futures contract in the world from his parents' basement, which allegedly caused the 2010 Flash Crash. Virtu Financial? It had absolutely nothing to do with the Flash Crash, according to the authorities.

If Virtu can have their triple algorithms, why can't we have one too? Maybe we'll see one on the Martha Stewart show. "With this algorithm, you can sell your stock and halt the sell program just before an imminent buyout!"