Owners and Founders of PayPal
PayPal’s origins trace back to two merged companies:
- Confinity: Founded in 1998 by Max Levchin, Peter Thiel, and Luke Nosek, initially focusing on security software for handheld devices before pivoting to digital payments.
- X.com: Founded in 1999 by Elon Musk, which merged with Confinity in 2000. Musk briefly led the merged entity before Thiel became CEO, rebranding it as PayPal in 2001[1][2][16][17][53].
Key members of the “PayPal Mafia” (early employees who became influential tech leaders) include:
- Reid Hoffman: LinkedIn founder.
- Steve Chen and Chad Hurley: YouTube co-founders.
- David Sacks: Later founded Yammer.
- Ken Howery: Co-founded Founders Fund and served as U.S. Ambassador to Sweden[1][20][56].
Ownership Structure (2024):
- Institutional investors hold ~27.4% of shares (Vanguard, BlackRock, Fidelity).
- Retail investors own ~72.6%.
- Insider ownership (executives like CEO Dan Schulman) totals ~1.5%[3][57].
Business Ethics and Controversies
Code of Conduct and Public Commitments:
PayPal emphasizes integrity, transparency, and compliance in its Code of Business Conduct & Ethics. It promotes diversity, anti-bribery measures, and customer trust[24][28][58][61]. However, recent controversies have raised ethical concerns:
- The Honey Scam (2024–2025):
- PayPal’s browser extension, Honey (acquired in 2020 for $4 billion), was accused of hijacking affiliate links from YouTube influencers. When users clicked an influencer’s product link and then activated Honey, the extension allegedly replaced the affiliate cookie with its own, diverting commissions to PayPal—even if no coupons were applied[6][7][11][64].
- Class-action lawsuits (e.g., Wendover Productions v. PayPal) claim this practice violated contracts and unjustly enriched PayPal. Plaintiffs argue Honey’s “last-click attribution” model prioritized its own profits over creators’ earnings[12][14][69].
- PayPal denied wrongdoing, stating Honey follows “industry standards,” but critics called the practice deceptive[7][13][64].
- Account Freezes and Fraud Allegations:
- Users frequently report sudden account suspensions based on PayPal’s fraud detection algorithms, which sometimes flag legitimate transactions as “false positives.” Funds can be frozen for months, even after disputes are resolved[9][46][68].
- In Mehmet v. PayPal (2008), a user sued after his account was wrongly suspended due to a false fraud alert. PayPal settled, but similar cases persist[9][46].
- A 2022 class action alleged PayPal misled investors about compliance risks, including non-transparent handling of PayPal Credit and debit card interchange fees[10][44].
- Ponzi Scheme Accusations (User Anecdote):
- While no court has ruled PayPal operates a Ponzi scheme, users report recurring account freezes. One example: A user’s account was held for six months over unsubstantiated fraud claims. After immediately transferring funds post-clearance, PayPal, within 12 hours imposed another six-month freeze on the now empty account—highlighting systemic issues with automated fraud detection[68].
- In 2025, PayPal faced a lawsuit alleging its cash incentives for new accounts enabled bot farms to create millions of fake accounts, inflating user metrics[47].
Key Legal Outcomes
- Mehmet v. PayPal (2008): Settled after PayPal admitted a “false positive” fraud detection error but faced no penalties[9].
- Securities Class Action (2023): A lawsuit over misleading claims about PayPal’s compliance practices was dismissed due to lack of evidence[44].
- Honey Lawsuits (2024–2025): Ongoing cases seek damages for affiliate commission theft; no rulings yet[12][14][69].
Here are excerpts of key cases involving PayPal and Ponzi scheme allegations:
Mehmet v. PayPal (2008)
U.S. District Court, Northern District of California
Plaintiff Mehmet alleged PayPal’s fraud detection system falsely flagged his $750 payment as fraudulent, froze $1,950 in his account, and sent defamatory emails accusing him of fraud. PayPal admitted it was a “false positive” but refused interest on withheld funds. The case highlighted systemic issues with automated account freezes, though PayPal settled without penalties. Mehmet brought 11 claims including fraud, defamation, and RICO violations, but critical claims were dismissed due to ambiguous User Agreement language.
Traffic Monsoon Ponzi Case (2017)
U.S. District Court, Central District of California
PayPal was sued for allegedly facilitating a $207M Ponzi scheme by Utah-based Traffic Monsoon. Plaintiffs claimed PayPal processed payments knowing the company used new investor funds to pay earlier investors. Despite SEC charges against Traffic Monsoon, PayPal denied liability, arguing it merely provided payment processing. The case settled confidentially in 2018, avoiding precedent on PayPal’s duty to detect Ponzi activity.
Hawaii v. PayPal (2025)
U.S. District Court, District of Hawaii
Hawaii accused PayPal of enabling scams by freezing accounts without explanation, disproportionately impacting unbanked residents. While not a direct Ponzi allegation, the state argued PayPal’s opaque fraud detection created “Ponzi-like risks” by allowing funds to be locked indefinitely while accepting new deposits. PayPal sought dismissal, citing User Agreement disclosures, but the court allowed claims under Hawaii’s unfair practices law to proceed.
Oganesyan v. PayPal (2025)
U.S. District Court, Northern District of California
A proposed class action alleged PayPal’s cash incentives for new accounts enabled bot farms to create 4.5M fake accounts, artificially inflating user metrics. Plaintiffs likened this to a “reverse Ponzi,” where growth depended on fraudulent sign-ups rather than organic demand. The case followed a 25% stock drop in 2022 when PayPal admitted the scheme.
PayPal stole users’ money after freezing, seizing funds, lawsuit alleges
User policies “cannot be used as a ‘license to steal.’”…
By Tim De Chant, ArsTechnica
PayPal is facing a class-action lawsuit alleging that the digital payments company violated racketeering laws by freezing customer funds without offering an explanation.
When users contacted PayPal about the frozen funds, they were told they had violated the company’s “acceptable use policy” but weren’t told how that violation had occurred, the lawsuit says. What’s more, it alleges that in at least one instance, PayPal said that a user would “have to get a subpoena” to find out why.
“PayPal violates its own Agreement by failing to provide adequate notice to users whose accounts have had holds placed on them,” the lawsuit says. When PayPal does let users know it placed a hold on their funds, “it does not inform such users why such funds are being held, how they can obtain a release of the hold, and/or how they can avoid future holds being placed on their accounts.”
It also says that PayPal takes the money for itself after a 180-day hold period. “PayPal’s user agreement and acceptable use policy cannot be used as a ‘license to steal,’” the complaint says.
“Never able to reach a live person”
The three lead plaintiffs claim they had nearly $250,000 seized by PayPal. One plaintiff, Shbadan Akylbekov, ran a storefront selling hyaluron pens, which are filled with hyaluronic acid, a dermal filler that is used to reduce wrinkles. He said that PayPal took $172,206.43 from his wife’s account, which he used for his store, with no explanation. After numerous calls and letters to PayPal, he was finally told that the seizure was “for its liquidated damages arising from those [acceptable use policy] violations pursuant to the User Agreement.” He claims he never received a copy of that policy until his account was restricted.
Later, PayPal said it used those funds to reimburse customers who had purchased hyaluron pens from his store. Akylbekov followed up by asking to see documentation of the customers who requested refunds. A PayPal customer service representative said the report would be available within two days, but Akylbekov says he still hasn’t received it.
Key Pattern: While no court has ruled PayPal operates a Ponzi scheme, multiple cases allege its systems enable third-party fraud or create analogous risks through opaque account freezes and growth practices[7][9][20].
Conclusion
PayPal’s founders revolutionized digital payments, but its ethical record is mixed. While the company champions transparency and anti-fraud measures, controversies like the Honey scam and aggressive account freezes reveal gaps between policy and practice. For users, the platform’s convenience often comes with risks of sudden financial disruptions—underscoring the need for clearer communication and reform in automated systems[4][7][68].
Sources cited: [1][2][3][4][7][9][10][11][12][14][16][17][20][24][28][44][46][47][53][56][57][58][61][64][68][69]
Citations. Apologies as there are 2 sets intermingled
Citations:
[1] https://www.businessinsider.com/paypal-mafia-members-elon-musk-peter-thiel-reid-hoffman-companies
[2] https://en.wikipedia.org/wiki/PayPal
[3] https://dcfmodeling.com/blogs/history/pypl-history-mission-ownership
[4] https://thedailyeconomy.org/article/paypal-and-the-purpose-of-a-corporation/
[5] https://www.governance-intelligence.com/shareholders-activism/paypal-faces-proposal-company-culture-report
[6] https://www.law.com/therecorder/2024/12/31/biggest-influencer-scam-of-all-time-paypal-accused-of-poaching-commissions-via-its-honey-browser-extension-/
[7] https://techxplore.com/news/2025-01-tech-giant-paypal-accused-fraud.html
[8] https://www.chargebackgurus.com/blog/5-paypal-chargeback-scams-how-to-prevent-them
[9] https://casetext.com/case/mehmet-v-paypal-3
[10] https://rosenlegal.com/case/paypal-holdings-inc/
[11] https://www.hindustantimes.com/trending/what-is-honey-scam-controversy-browser-extension-promoted-by-mrbeast-others-accused-of-ripping-off-customers-101735377113342.html
[12] https://www.adweek.com/commerce/paypal-honey-faces-class-action-suit-for-allegedly-manipulating-affiliate-links/
[13] https://www.theverge.com/24343913/paypal-honey-megalag-coupon-scam-affiliate-fees
[14] https://en.wikipedia.org/wiki/PayPal_Honey
[15] https://www.britannica.com/money/PayPal
[16] https://www.mentorist.app/books/the-founders-the-story-of-paypal-and-the-entrepreneurs-who-shaped-silicon-valley/
[17] https://www.electronicpaymentsinternational.com/news/paypal-history-milestones/
[18] https://www.sequoiacap.com/podcast/crucible-moments-paypal/
[19] https://www.nasdaq.com/market-activity/stocks/pypl/institutional-holdings
[20] https://fleximize.com/paypal-mafia/
[21] https://valuesider.com/ticker/PYPL/29757041935052Y103/ownership
[22] https://www.americanswiss.org/the-founders-the-story-of-paypal-and-the-entrepreneurs-who-shaped-silicon-valley/
[23] https://stemsearchgroup.com/founder-friday-the-paypal-mafia/
[24] https://s202.q4cdn.com/805890769/files/doc_downloads/global-impact/Code-of-Business-Conduct-Ethics-2022_External.pdf
[25] https://www.paypal.com/nz/legalhub/paypal/useragreement-full?locale.x=en_NZ
[26] https://about.pypl.com/how-we-work/employees-and-culture/default.aspx
[27] https://developer.paypal.com/api/rest/reference/info-security-guidelines/
[28] https://www.paypal.com/uk/legalhub/paypal/bcr?locale.x=en_GB
[29] https://www.worldbenchmarkingalliance.org/publication/digital-inclusion/companies/paypal-3/
[30] https://about.pypl.com/how-we-work/reporting/default.aspx
[31] https://www.businessnewsdaily.com/10416-paypal-social-responsibility-tips.html
[32] https://www.takeflyte.com/resources/newsletters/06/09-paypal-good-bad-ugly.php
[33] https://wise.com/us/blog/how-does-paypal-business-work
[34] https://www.reddit.com/r/UKPersonalFinance/comments/1hs07e4/now_that_honey_paypal_has_been_exposed_as_a_scam/
[35] https://hellopartner.com/2025/01/08/what-megalag-gets-wrong-about-paypal-honey-and-affiliate-marketing/
[36] https://www.paypal.com/us/cshelp/article/what-is-paypal-honey-help592
[37] https://economictimes.indiatimes.com/news/international/us/youtuber-mrbeast-lands-into-major-fiasco-as-honey-scam-controversy-rips-off-customers-heres-how-you-can-stay-safe/articleshow/116741799.cms
[38] https://www.youtube.com/watch?v=vc4yL3YTwWk
[39] https://www.youtube.com/watch?v=EAx_RtMKPm8
[40] https://www.linkedin.com/posts/shane-o-leary-1660_the-honey-scam-explained-activity-7280641492786810880-suq9
[41] https://www.justice.gov/opa/pr/man-sentenced-stealing-paypal-accounts-wire-fraud-scheme
[42] https://www.paypal.com/nz/cshelp/article/what-are-common-scams-and-how-do-i-spot-them-help201
[43] https://www.courthousenews.com/paypal-accused-aiding-abetting-ponzi-scheme/
[44] https://www.paulweiss.com/practices/litigation/securities-litigation/news/paypal-wins-dismissal-with-prejudice-of-securities-class-action-over-regulatory-compliance?id=46676
[45] https://www.aura.com/learn/paypal-scams
[46] https://casetext.com/case/mehmet-v-paypal
[47] https://www.globenewswire.com/news-release/2025/02/04/3019960/0/en/PAYPAL-ALERT-Bragar-Eagel-Squire-P-C-is-Investigating-PayPal-Holdings-Inc-on-Behalf-of-Long-Term-Stockholders-and-Encourages-Investors-to-Contact-the-Firm.html
[48] https://www.paypal.com/us/money-hub/article/fraud-vs-scam-difference
[49] https://www.courthousenews.com/high-court-remands-case-of-paypal-fraudster/
[50] https://www.hbsslaw.com/press/paypal-fees-antitrust/class-action-lawsuit-accuses-paypal-of-anticompetitive-pricing-rules-affecting-millions-of-consumers
[51] https://www.paypal-community.com/t5/Security-and-Fraud/PayPal-supports-scam-sellers-but-not-those-scammed/td-p/3170400
[52] https://www.justice.gov/usao-sdin/pr/carmel-man-indicted-using-paypal-and-ebay-gain-2000000-fraud
[53] https://quartr.com/insights/company-research/the-paypal-story-online-payment-pioneers
[54] https://en.wikipedia.org/wiki/Timeline_of_PayPal
[55] https://www.thestreet.com/technology/history-of-paypal-15062744
[56] https://en.wikipedia.org/wiki/Jack_Selby
[57] https://www.gurufocus.com/stock/PYPL/ownership
[58] https://surveypoint.ai/blog/2024/06/26/everything-you-need-to-know-about-paypals-leadership-principles/
[59] https://s202.q4cdn.com/805890769/files/doc_downloads/Code-of-Business-Conduct-Ethics-2023_External.pdf
[60] https://www.paypalobjects.com/digitalassets/c/website/marketing/global/about/responsible-practices/Code-of-Conduct-2018.pdf
[61] https://about.pypl.com/how-we-work/responsible-business-practices/default.aspx
[62] https://investor.pypl.com/governance/governance-overview/default.aspx
[63] https://www.paypalobjects.com/digitalassets/c/website/marketing/na/us/corporate-responsibility/supplier-code-of-business-conduct-ethics.pdf
[64] https://indianexpress.com/article/technology/tech-news-technology/honey-browser-extension-scam-explained-9754881/lite/
[65] https://www.reddit.com/r/assholedesign/comments/1hkl0rf/honey_a_coupon_app_by_paypal_manipulates_cookies/
[66] https://www.paypal.com/us/cshelp/article/how-do-i-spot-a-fake-fraudulent-or-phishing-paypal-email-or-website-help164
[67] https://www.businesswire.com/news/home/20221004006190/en/INVESTOR-ALERT-PayPal-Holdings-Inc.-Investors-with-Substantial-Losses-Have-Opportunity-to-Lead-the-PayPal-Class-Action-Lawsuit—PYPL
[68] https://www.reddit.com/r/paypal/comments/17rb5j4/paypal_scam_that_i_stopped_but_paypal_still_is/
[69] https://www.law.com/therecorder/2025/01/10/its-not-going-to-be-pretty-paypal-capital-one-face-novel-class-actions-over-poaching-commissions-owed-influencers-/
Citations:
[1] https://casetext.com/case/mehmet-v-paypal-3
[2] https://www.seegerweiss.com/securities-fraud/paypal-class-action-lawsuit/
[3] https://www.ecommercetimes.com/story/paypal-users-sue-over-frozen-funds-16751.html
[4] https://casetext.com/case/mehmet-v-paypal
[5] https://www.law.com/therecorder/2024/12/31/biggest-influencer-scam-of-all-time-paypal-accused-of-poaching-commissions-via-its-honey-browser-extension-/
[6] https://www.cohenmilstein.com/case-study/oganesyan-et-al-v-paypal-inc/
[7] https://www.reuters.com/article/legal/paypal-hit-with-lawsuit-alleging-it-aided-ponzi-scheme-idUSL1N1IB01I/
[8] https://www.prestashop.com/forums/topic/62364-paypal-beware-of-paypal-6000-usd-seized-by-paypal/
[9] https://www.bloomberg.com/tosv2.html?uuid=3ff55cfe-ce30-11ef-8509-21fea3c4598d&url=L25ld3MvYXJ0aWNsZXMvMjAxNy0wNS0wNS9wYXlwYWwtYWNjdXNlZC1pbi1zdWl0LW9mLWNydWNpYWwtcm9sZS1pbi1tYXNzaXZlLXBvbnppLXNjaGVtZQ%3D%3D
[10] https://news.ycombinator.com/item?id=29933481
[11] https://www.justice.gov/opa/pr/man-sentenced-stealing-paypal-accounts-wire-fraud-scheme
[12] https://www.courthousenews.com/wp-content/uploads/2017/05/Paypal-Ponzi-COMPLAINT.pdf
[13] https://www.reddit.com/r/paypal/comments/11d0z59/has_paypal_frozen_your_account_without_explanation/
[14] https://www.courthousenews.com/paypal-accused-aiding-abetting-ponzi-scheme/
[15] https://www.paypal.com/us/security/learn-about-scams
[16] https://forums.techsoup.org/t/paypal-froze-our-savings-for-6-months/7402
[17] https://www.courthousenews.com/high-court-remands-case-of-paypal-fraudster/
[18] https://www.justice.gov/usao-sdin/pr/carmel-man-indicted-using-paypal-and-ebay-gain-2000000-fraud
[19] https://www.ftc.gov/business-guidance/blog/2022/05/ftc-sends-149-million-refunds-people-harmed-alleged-advocare-pyramid-scheme
[20] https://www.courthousenews.com/paypal-looks-to-dismiss-claims-it-froze-accounts-and-turned-a-blind-eye-to-scams/
