Beware: The cloud's Ponzi schemes are here

The SEC shuts down a cloud computing scam -- and more could be on the way

The U.S. Securities and Exchange Commission has shut down a worldwide pyramid scheme that falsely promised fast gains to tens of thousands of Asian-American, Hispanic, and foreign investors from cloud computing services. The companies in question, WCM and WCM777, allegedly raised more than $65 million over the last year. They did this by promising people they could double their money in 100 days by investing between $399 and $1,999 in cloud services.

The WCM entities used some new money to pay older investors, like a good old-fashioned Ponzi or pyramid scheme. They also spent funds on two California golf courses and other properties, as well as to play the stock market. I'm not sure which one is riskier.

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Although there is some humor to be found here, I suspect that we'll see more and more of such shady occurrences around cloud computing, as the technology continues its hot streak and its startups' worth climbs to the billions. I don't worry as much about the obvious scams like WCM that can be easily shut down by authorities. What concerns me more are scams like phony cloud startups seeking investors or cloud services sold through pyramid marketing.

I speak at many cloud computing conferences, and I already see the scammy ideas being floated, such as reselling public cloud services in ways that could violate agreements or hosting data for free as long as you don't mind the seller culling through your data at will.

Although the WCM/WCM777 scheme targeted individuals, I'm sure enterprises will be targeted at some point. When that occurs, it will be difficult to determine the true startups with legitimate cloud services that enterprise IT can find useful versus the scam offering. After all, cloud computing is just an abstract concept: You don't see any hardware or software. Many deals are sold just around Power Point presentations, Web demos, and perhaps a few quick proofs of concept.

If there was ever a time to heed this advice, it's now: Buyer beware.

This article, "Beware: The cloud's Ponzi schemes are here," originally appeared at InfoWorld.com. Read more of David Linthicum's Cloud Computing blog and track the latest developments in cloud computing at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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