Over the last two years, an FBI affidavit claims, Pang and his assistants made 38 separate cash withdrawals below the $10,000 limit which triggers a report to the authorities; the rule is meant to track money-laundering activity. Evading the reporting requirement by making multiple transactions below the limit carries a penalty of up to 10 years in prison.

But that's a small crime compared to the one SEC officials are alleging: that Pang lied to investors about his background, falsely claiming he had an MBA degree and worked at Morgan Stanley, and that he ran part of PEMGroup's $4 billion money-management business as a Ponzi scheme.

The Oedipal twist: Madoff's own sons, Andrew and Mark, turned Madoff in after he told them that the money-management arm of his firm, which ran hedge funds for wealthy investors, was "a giant Ponzi scheme." That term gets thrown around a lot, so we'll remind you of what it actually means: A scheme in which current investors are paid outsized returns not from investing profits but from money put in by new investors.

That is, according to an FBI agent's complaint, exactly what Madoff did:

deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars.

All goes well in this kind of scheme until the money stops flowing in. Madoff told his sons that customers had sought to withdraw $7 billion, and he did not know if he could come up with the cash.

Madoff's lawyer, Dan Horwitz, touted his client's "unblemished record" to the Wall Street Journal. But rivals on Wall Street have questioned his curiously steady returns for years.

The complaints against Madoff are shocking. But mostly for the simplicity of the alleged swindle. A Ponzi scheme, in this day and age? It show the need for better hedge-fund regulation — boring! This was a rich-on-rich crime.

The case of Marc Dreier, a lawyer recently arrested on allegations of a $380 million hedge-fund fraud, is far more compelling, with faked-up websites and multiple cell phones. Prosecutors say he tried to sell fake debt instruments to a pension fund.

It all points to a much-needed sweep of the hedge-fund world. But neither Madoff nor Dreier seem to have played a significant role in the housing bubble that could end with 8 million homes in foreclosure. Yeah, the feds got their men. But we didn't get our scapegoats.

I happened to be in Tel Aviv when Tenenbaum turned himself in to Israeli authorities on the day he was set to report for compulsory military service — he was treated as something of a national hero, a symbol of Israel's technology prowess, with even then Prime Minister Bibi Netanyahu praising him as "damn good." Tenenbaum ended up with probation and community service instead of jail time. So it wasn't with much surprise when I read Tenenbaum's mother calling the arrest a frame-up by the FBI.

The truth? The prepaid credit card scam described is a classic modus operandi in Canadian tweaker circles, at least as described in Zero Day Threat. And Tenenbaum certainly had to chops to pull it off, with the cast of fellow suspects who've been released probably participating as mules to make transactions. So once again, I'm betting Canadian dollars to donuts from Tim Horton's on meth.

[G]ive us the ability to preempt that illegal activity where it comes through a choke point as opposed to the point where it is diffuse on the Internet.

Valleywag: Tell me the scoop in three sentences.
Memehacker: Alan Ralsky is currently being held by the feds and his file is sealed for the next 72hrs by the DOJ. We are concerned that he is going to narq out the entire network since they have enough on him to send him to jail. This means hackers, spammers, anyone who has worked in spam legally or illegally for the last 5 years at least.
The DOJ wants to do a dragnet, they have the top dog, but they want the whole system as well.
Wag: How many people could be in trouble?
MH: There is a risk of a huge network collapse in the hack scene. I couldn't estimate since I don't know who he has worked with, but it's a lot of people. Think of a huge pyramid with him at the top. He is one of the few people that has knowledge of a large part of the hackscene network.
Wag: What were Ralsky's biggest crimes? How would I explain this guy to my mom?
MH: Ralsky is known as the Spam King. He is one of the biggest spammers out there, his network and spamlists are huge. He is not afraid to use shady methods to bypass filters and to acquire new lists.
He has been known to use the hack scene to help him spam and to get him new lists to work with.

After the jump, why Ralsky would squeal.

Wag: What does he get out of ratting everyone out? And why didn't he do it in 2005 when he was raided?
MH: If he can cut a deal with the DOJ he may get a reduced sentence or even full immunity. I don't know how much he has to offer them, but taking out a network as large as his would definitely give him some bargaining power. I believe this is still the same case as 2005, they just didn't have enough on him back then to really scare him.
Shutting down his network is a lot less scary than jailtime, which was all they could do back then.
We assume that it is more this time since the DOJ sealed the case. They don't do that unless they are planning to do something during that time.
Wag: How many people would get burned? How bad could the fallout be?
MH: It depends on who did what for him, or what he knows about people. I couldn't estimate, but currently a lot of people are very scared.
It's not just about spamming, he knows stuff about other various activities in the hack scene.
Wag: Are we just talking about a bunch of kids here?
MH: Not just kids, legit spam companies that use shadier methods, older people who do spam stuff on the side to make money. There was that case a few years ago of the kid who got aol's user file and tried to sell it. Stuff like that, leaving your company, but taking some info and trading it for money or info. Sometimes people do stupid things because they are upset at their company or something.
Wag: And why get the story out there? What's your motive?
MH: Personally I want the network to be aware of what's going on. Who knows what he is saying in there, no one knows what exactly he knows.
Or what he has guessed.
Wag: And what happens when the file's unsealed?
MH: Even just some stupid kid that bragged to him about buzzing a government network to see if he could.
Then we know what the charges are, what they have on him.
And possibly the deal that was made.

Stay tuned to Valleywag as the story develops.