ICO Fraud continues to rise but these tips will help you make better choices

Over the last 2 years ICO exit scams have cost investors $96.8m according to blockchain experts Diar. While this looks like an eye-watering number, we have to remember it's only a fraction of the $6.8 billion raised by blockchain start-ups in 2018 alone.

Nevertheless $100m is not an inconsiderable sum and the majority of this ignominious total can be linked back to 5 ICO frauds -

1. Shenzhen Puyin Blockchain. Shenzhen Puyin Blockchain were behind 3 offerings (ACChain, Puyin, and BioLifeChain) which, as none of the ventures actually materialised, combined to defraud investors of $60m.
2. Cryptokami. Somewhat audaciously self-proclaimed as the "New 3rdGeneration Blockchain Infrastructure for Global Financial Services" and as a vehicle that would "reduce the risk of scams" Cryptokami’s site has now gone dark taking $12m of its investors' money with it.
3. NVO. NVO claimed it was going to be a "Cross-platform Modular Decentralized Exchange"; the only problem is its website haven't seen an update since March and its investors haven't seen their $8m since around then either.
4. LoopX. LoopX was promoted as an investment platform that deliver success for its users via its unique trading algorithm. That algorithm has never been used as the company has taken down its website ... and $4.5m of its backers' cash.
5. Block Broker. Block Broker came to the market promising it would eliminate ICO fraud by delivering a "a 100% safe investment environment". Somewhat ironically it didn't and 100% successfully defrauded investors of $3m.

But, as almost $7 billion has been raised by legitimate ICOs, the majority of coin offerings are still generating the desired returns for their investors so the question has to be how do you spot a scam?

The main point to remember before you even consider investing in an ICO is that we are - to borrow an increasingly popular phrase - very much still in a Digital Wild West.

Despite increased attention from the US' SEC, ICOs continue to operate without any regulation which will always make them attractive to cyber-criminals. However, there are some common 'tells' you can look for (e.g. plagiarised imagery on websites/promotional material, fake employee profiles and the re-publication of whitepapers stolen from other sources) but sometimes the best way to spot malpractice is to look at some of the recent frauds brought to light by the press:

1. Othor. Ethereum's founders sent repeated warnings out on Twitter telling would-be investors Othor were using his name illegally to market 'Ethereum 2.0'. And if that wasn't enough, it soon became apparent the picture of Othor's CEO being publicised actually belonged to a Spanish chef who probably wasn't an 'infinite expert in the cryptocurrency market' as billed.
2. PlexCoin. Dominic Lacroix launched PlexCoin by making a series of bold headline claims it was unlikely it could ever deliver on. Lacroix raised more than $15m before the claims were recognised as lies but because that a,mount had been raised via cryptocurrencies, the SEC have not been able to recover the money.
3. Confido. Confido's ICO to attract investment for its ‘smart contracts’ generated international interest ... before disappearing overnight with an estimated $375,000.
4. Qtum. Journalists uncovered the fact the man behind Qtum, Patrick Dai, had been suspected of involvement in a string of fraudulent ICOs, including the Bitbay scam in which thousands of Bitcoins were stolen from investors. Qtum continues to raise investment but more cynical industry figures are watching closely to see how the offering finally plays out.
5. Giga Watt. Giga Watt's aim was to raise finance to launch its proprietary cryptocurrency mining system. However, they are now bring sued by investors who have received neither the benefits of the tokens not access to the mining solution.
6. 'Pump and Dump'Schemes

Pump and Dump schemes are nothing new but are thriving in the crypto world. Basically the scheme is initiated by a group of people who buy up large amounts of a currency quickly to inflate its price. Then, once the outside world notices and start to buy in, the scammers sell at a profit and the value of the currency crashes to below its original rate.

Today more and more reports of pump and dump schemes (most notably using the Las Vegas-based exchange Bittrex or the Russian exchange Yobit) are being reported although it has to be noted that due to a lack of regulation, this type of scheme is not actually illegal.

So what can we learn from these cases?

• If a company’s promises/research/marketing sounds hard to believe, you're probably better not believing it.
• If everything they say is choked up with confusing jargon and acronyms, don't trust it. Only invest in what you do understand.
• If an offering is trying to piggy-back on a currency, a company or an individual's past successes, alarm bells should be ringing.
• If there is no obvious purpose for the technology or solution behind the offering, don't invest.
• If their marketing just repeats a limited cycle of PR without making (or supporting) any claims with substance, be wary.
• If the claims being made aren't supported by recognised experts or by positive online chatter, it's likely those claims aren't 100% genuine.

As we are still in a 'Digital Wild West', you must be totally sure about the veracity of any ICO or cryptocurrency trade you want to enter into. If you'd like to discuss a potential investment or find out what to do next if you've fallen victim to any type of digital fraud, call us on 0203 131 6314 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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