Traditional financial markets are tightly regulated these days, so it very problematic for con artists to pull off frauds and get away with it. Things are different in the cryptocurrency landscape due to its unregulated nature. Some of the common scam vectors targeting this decentralized economy include Ponzi schemes, extortion viruses, phishing attacks that dupe people into trusting threat actors with their funds.
A relatively new type of hoax referred to as ICO exit scams have splashed onto the scene recently, causing multimillion losses to wannabe investors in cryptocurrency startups. Below is a low-down on the most defiant scams of this sort that popped up over the past few months.
LoopX ICO Exit Scam
The idea behind thestartup appeared commendable. The crew behind it claimed to have elaborated a unique algorithm to build an innovative cryptocurrency trading app. Unfortunately, this story turned out to be a bluff as the unscrupulous “entrepreneurs” raised $4.5 million during an Initial Coin Offering and vanished in mid-February 2018. They took down their website and deleted their Facebook, YouTube and Telegram profiles without any commentary.
Perhaps the only good news is that the fraudsters didn’t go all the way collecting $12 million, an amount they purportedly needed to implement their pseudo-project. That’s still cold comfort for those who lost money, though. Having realized what happened, those who were unlucky to invest in LoopX teamed up and plan on filing a class action lawsuit against the scammers.
Interestingly, some reputable players in the cryptocurrency business had pointed to some red flags regarding this ICO shortly before the bubble popped. It is always worthwhile to monitor signals like that before investing.
Prodeum ICO Fiasco with a Flavor of Trolling
For the record, Prodeum was a Lithuania-based project whose purported objective was to combine conventional PLU (price look-up) processes with the blockchain technology. Specifically, its founders claimed to “revolutionize fruit and vegetable tracking” so that buyers could monitor the supply chain and track where their food came from using Ethereum’s transaction ledger.
Although the idea was catchy, it allin late January 2018. The Prodeum team suddenly went dark by deactivating their Twitter account and replacing the content of their website with a single word – “penis.” Go figure what that’s supposed to mean. By that time, the ICO had raised only $11 worth of .
This scam stands out from the crowd in several ways. First of all, investors lost a ridiculously small amount of money. Secondly, Prodeum boasted a professionally tailored website and conducted some good marketing. For instance, its operators paid people on Fiverr to promote their startup by posting pictures with its name written on their bodies. Such a well-orchestrated fraud could have potentially raised millions, but fortunately, it didn’t.
Confido ICO Team’s Foul Play
An ICO for another cryptocurrency initiative called Confido took root on October 28, 2017, andfor investors, to put it mildly. Having raised about $375,000 to supposedly build their product, the group called it quits without notifying fundraisers. They deleted their website and social media accounts, ran off with the pretty penny in their sack and were since never heard of.
Confido’s declared market niche was to implement a fusion of smart contracts and a sophisticated shipment tracking feature facilitating the interaction between a seller and a buyer.
Their app was supposed to secure escrow payments without involving a third party and release funds only after a package has been delivered. This Initial Coin Offering was conducted via TokenLot, a well-known platform that hosts fundraising campaigns. The general aura of legitimacy lured potential backers who purchased Confido tokens worth some $375,000 during the ICO.
According to TokenLot, Confido met all requirements to be listed on their service. After the exit scam was pulled off, this “ICO Superstore” started an investigation into the shenanigans to track down the fraudsters but has had no success thus far.
How to Avoid ICO Exit Scams
With the number of fraudulent ICOs growing, here are some tips on how to tell the wheat from the chaff and not invest in something that will never go live:
Explore LinkedIn pages of the startup’s team members
In the Confido incident described above, the LinkedIn profiles of the project’s four main roles (CEO, CTO, and key developers) were brand new and had scarce connections. This should have become a wakeup call for stakeholders, but it didn’t. The lesson learned is to scrutinize LinkedIn pages of the crew and do some OSINT to vet their previous work experiences.
Question the claims
Read between the lines when it comes to claims made by representatives of a project. Going back to the Confido case, the crooks boasted cooperation with ChainLink, a sophisticated decentralized service facilitating smart contracts. In fact, though, that was an outright lie. So, treat serious claims with a fair degree of paranoia before investing in an ICO.
Look for the actual product
Steer clear of ICOs that have no working product. We’re talking about a viable service that should have an implementation roadmap and be at least at a certain stage of development, not simply an ERC-20 token.
Treat microcap projects with caution
A low fundraising threshold of an ICO doesn’t mean it’s a scam at all, but it might indicate felons’ desire to evoke trust and attract as many backers as possible within a small timeframe. The manipulative aspect of this tactic also revolves around an ostensibly big price potential of a token that lures a lot of people.
Remember all that glitters is not gold
If a new cryptocurrency startup appears out of the blue, claims to be revolutionary to the bone and promises a significant return on investment in no time, you’d better take a closer look at it before investing. Swindlers are good at making ungrounded promises and false claims.
ICOs are a great way to get the bang for one’s buck and become a part of the big cryptocoin rush. People love such opportunities, and fraudsters know it. The ICO exit scams dissected above demonstrate how an investment can end up becoming a disaster instead of bringing profit. So, exercise caution when participating in ventures like that, don’t take promises for granted, do your own research, and follow your intuition to stay on the safe side.