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Author Topic: ICO Scams  (Read 5892 times)

Offline greentara

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ICO Scams
« on: April 24, 2018, 04:25:45 PM »
Blatant Exit Scams on Rise, Sums Small in ICO Raise Comparison
2018 April 23 - Volume.2 Issue.16

The ICO has become synonymous with exit scams, which have become more frequent in 2018. The due diligence in ICOs is shifted from institutions to individuals who have less resources, less knowledge and are easier influenced by marketing techniques and get-rich-quick schemes. Online platforms that review ICOs have also been ineffective. And while the SEC was able to step in and stop three blatant fraudulent ICOs, not all investors were so lucky.

Last Thursday, German startup Savedroid that raised more than $50Mn through an ICO faked an exit scam as a PR stunt in order to promote its new service offering to consult ICOs. For a duration of one day, Savedroid changed its website, stopped communicating on social media- but not without a final message to imprint the companies faked exist as Savedroid’s CEO Yassin Hankir tweeted: “Thanks guys! Over and out”.

According to Mr Hankir, the stunt was pulled to show how easy it is to run off with the money in order to convey “a very serious message that the scamming in the ICO industry really endangers the trustworthy innovative startups”.

Even though the publicity stunt clearly worked as news outlets such as Bloomberg covered the event, Savedroid arguably lost trust of its tokenholders. There have already been talks of filing a class action lawsuit against Savedroid in Germany, the company’s base, where it is illegal for a CEO to intentionally devalue an investment. However, since Savedorid is technically not an investment, the likelihood of winning the case is sparse. The actual consequences, whether positive or negative, remain to be seen.

When compared to a tightly regulated financial market, it is true that in a highly unregulated ICO market, it is fairly easy to run away with the money. The majority of exit scams promise unrealistic future returns and run for a very limited time to capitalize on the fear of missing out.

The largest successful ICO exit scam to date is LoopX, which disappeared in February after raising close to $4.5Mn. The project promised to build an investment platform with a proprietary trading algorithm that generates “profits bigger than 10% paid out to our members on a weekly basis.” LoopX deleted its website and social media profiles post-funding.

One month earlier, another ICO, Benebit, pulled the second largest exit scam in the space. Benebit, which was supposed to build a cryptocurrency ecosystem to unify customer loyalty programs, raised approximately $2.7Mn. The team ran away with all the money after it was found that all the images of team members were taken from the staff of a British High School. It is important to note that prior to the exit scam, Benebit only had positive reviews on ICO review sites but afterwards, all the reviews were changed to be negative. Arguably, ICO review sites are also easily influenced and do not serve as a reliable metric for due diligence.

There are also large scams that failed because of the timely interference of the SEC. In September, the SEC charged a Maksim Zaslavskiy from defrauding people that invested in his two ICOs REcoin and DRC. REcoin and DRC raised funds for investing in real estate and diamonds while promising high returns but SEC stated that no assets were ever bought and there were no company operations. Similarly in December, the SEC charged PlexCoin for fraudulently raising $15Mn. Dominic Lacroix, the man behind PlexCoin, was sentenced to 2 months in prison and all of his assets were frozen.

The number of exit scam ICOs is increasing with already eight in 2018 alone when only three happened in 2017. The total amount of successful exit scam ICOs is only about $11Mn, which is only about 0.1% of the total amount raised through the ICOs.

With that being said, however, with 1000’s of projects and ICOs having kicked off in the past year raising large sums of money, a blatant exit scam wouldn’t actually be necessary. The de facto state of blockchain projects remain at most on testnet, with less than a handful of projects going live. The slow siphoning of funds, while appearing hard at work would be more likely in questionable projects.

And whilst some ICOs disclose spending allocation of funds, any further insight post-raise is by no means a requirement in an unregulated market. And due to volatility of cryptocurrencies, an immediate fiat conversion would be the most safe approach - one which most projects would correctly opt for.

Cryptocurrency Exit Scams
Name    Date    Amount
Pincoin, Ifan    April-2018    -
Bitcoiin    March-2018    -
Miroskii    March-2018    $833,000
LoopX    February-2018    $4,500,000
Benebit    January-2018    $2,700,000
Prodeum    January-2018    $3,400
PlexCoin*    December-2017    $15,000,000
Confido    November-2017    $375,000
Recoin, DRC*    October-2017    $300,000
Ebitz    November-2016    $1,500,000
Opair    July-2016    $1,400,000
Total*        $11,311,400
Notes: Total Sum of Scams Excluding * Projects

Ponzi Schemes
Name    Period    Total
Bitconnect    January 2018    -
PonziCoin    January 2018    $250,000
DavorCoin    January 2018    -
Da Tang Coin    October 2017    $13Mn
Korean Ponzi    July 1905    $25Mn
OneCoin    -    -

Opinion: Vietnamese Exit Scam Feasibility Remarks
A number of news outlets have reported on a recent exit scam by PinCoin that has netted the operators with a whopping $660Mn. Only a little bit of scrutiny would show the extremely little likelihood of anyone raising $660Mn for a project only to be heard of after the fact. Diar, cognizant of this, and that swindling a supposed 33,000 people out of $20K on average each in a project were the website bears the all-mighty “Lambo” in a country whose GDP per capita is $2000 would be bordering on impossible. This publication will remain highly skeptical of figures until more details come to light.

How Are Top ICOs Planning to Distribute Funds?

Bancor:  Dev. 40%Reserves 20%
Tezos:  Dev. 42%Marketing 19%

Top ICO Wallet Drawdown (%)
Name    ETH raised    ETH balance    Drawdown %
Bancor    396,720    60,448    85
Filecoin    566,715    216,906    62
Tezos    361,122    203,468    44
Polkadot    485,331    306,276    37
Status    299,898    267,419    11
EOS    651,902    631,974    3