Initial Coin Offerings and token sales have increased in popularity and value over the course of 2018. Unsurprisingly, this has made a lot more investors, both in US and abroad, eager to participate. However, this increased value and popularity has brought with it a multitude of scams. Just recently, our CEO issued a statement to warn crypto and ICO investors about fake advisors, after he noticed his own name being listed as an advisor on some foreign based ICOs, without his consent.
In this article, industry insiders discuss the top ICO scams watch out for in 2019. They also provide some indispensable tips and advice, as well.
Influencer Impersonator Scam
“One of the most pernicious scams out there is the crypto influencer fake account. Impersonators will create carbon copies of the profile of a well-known person in the crypto space and then proceed to message people publicly or privately about an exclusive opportunity in the space like co-investing alongside the celebrity in a hot new ICO or blockchain deal. The accounts are virtually indistinguishable with the exception of one small letter or underscore. We’ve been ‘cloned’ several times and have unfortunately seen people send thousands of dollars of bitcoin to these fake accounts to purchase seed stage shares or pre-ICO tokens in a deal getting some good buzz.
If it’s Instagram or Twitter, always look for the blue checkmark signifying a ‘verified account’. More importantly, use common sense. If the returns promised are too good to be true, they likely are. Whether it’s a bot or a new seed stage deal or other ‘opportunity’, before you send crypto to anyone, always take the time to locate the actual account and send a message asking for confirmation that the deal is real. Most influencers will thank you and warn you if the account was a fake. Also please take the time to report the fake account to Twitter, Instagram or the relevant platform to remove the risk that others fall for the same scheme.”
Michael Kimelman, Founding Partner and Editor-in-Chief, Crypto.IQ
“If in the purchase agreement and/or the whitepaper, the ICO issuer does not use the word investor or investment, then it is a scam. The issuer will substitute the word “buyer” or “purchaser” in the agreements in lieu of using the word investor/s because the issuer cannot use the word investor if their coin does not comply with securities laws. Most ICOs as constructed CANNOT have investors because the issuer refuses to identify their coins securities, which would require them to comply with securities’ regulations. If the coins are not securities, then investors cannot invest in them. ICO and investors are oxymorons.
How to avoid this scam:
1. Make sure the word investor is in the purchase agreement.
2. Make sure the purchase agreement identifies the coins as securities and the securities being offered are done so in compliance with securities’ laws. In the US, the offering has to abide by SEC regulations (won’t go into the different types of offerings here).
3. READ THE DISCLOSURE Avoid offerings that have a disclosure that basically says, “Purchaser/Buyer should not purchase these coins for any investment, speculative or financial purpose.” READ THE DISCLOSURE.
4. Avoid any offering that relies only on a whitepaper to describe the offering. Ask to see a Private Placement Memorandum or an Offering Circular. “
Charlie Uchill, COO and Co-Founder, CERES
Fake Team Members Scam
“When team members are either fake or don’t have any background
information – It has become a common practice of ICOs to fake team members’
backgrounds to make the team look more sophisticated than they actually
Return on Investment Scam
“When ICOs are promising a return on investment – When you are selling
securities, you are never allowed to promise a specific return on an
investment. Nonetheless, I see a number of ICOs do this anyway—not to
mention there is no chance they are going to meet those numbers. “
ICO Revenue Scam
“When you don’t understand how an ICO makes money – If you read a
company’s whitepaper and business plan and it doesn’t become clear to you
how they make money, it is likely they will go out of business in the next
12-18 months, taking your investment with them.”
Kyle Asman, Partner and Co-founder, BX3 Capital
“This is pretty much the latest scam going on right now, where you see cryptocurrency comes out and makes trusted promises of building a coin, wallet, and exchange at the same time. When you see any new cryptocurrency project with this plan, take a second look at it again.
A good cryptocurrency project must have its wallet with a third party platform and must be traded somewhere else. When a new project comes out with its own coin/token, wallet and exchange, it violates the idea allowing the community to control the price as developers will stay back behind their ecosystem and manipulate the market and when they are done selling their coins to their preys, they come up with hack cases and shut down, leaving many investors in pain. ”
Gudtalent Chrisent, Marketing Lead at Satowallet, Business Writer
at Entrepreneur Nigeria
“Are they heavily dependent on the paid media releases (press releases)
and buzz, but not necessarily delivering on their promise? Do you see some unknown ‘online personalities’ constantly hyping or buzzing about the project prior to the launch? Check the authenticity of the conversation, and the origins of them. Don’t buy into the rumors.
Recommendations to look for: Does the team have extensive knowledge and domain expertise in the problem they’re looking to solve? Does the team have a successful track record in terms of delivering past projects they’ve been involved in? ”
Jonha Richman, Marketing Advisor for Blockchain Companies
If you keep these ICO scams in mind when reviewing future ICOs, you are likely to minimize your chances of getting scammed and maximizing potential returns from your ICO investment strategy. As an investor, you have to do you due diligence regardless of which asset class you plan to invest in, and it is no different in the crypto and ICO industries. Investors must remember that there is no government oversight or buyer protection when it comes to investing in ICOs, since this is a relatively new and unregulated industry.