Cryptocurrencies have revolutionized the way people do transaction worldwide - but they've also facilitated some monumental scams within the last nine years. The success of Bitcoin and several altcoins jumpstarted an industry that's incorporating Blockchain technology in several innovative ways.
As the smartest minds have created some game-changing companies backed by the ability of Blockchain and cryptocurrencies, nefarious minds also have jumped on the bandwagon, fleecing unwitting investors in elaborate scams.
ICOs fever spawns massive scams
Since Bitcoin's inception in 2009, people are becoming increasingly enamoured with the thought of Blockchain technology. With time, developers and business minds began creating their own solutions with this specific decentralized ledger technology. This resulted in the development of Ethereum and other virtual currencies, with the former simply in charge of a boom in initial coin offerings (ICO) in 2017.
Being an ICO is basically a circular of public finding and is normally launched with a tech startup which sells cryptocurrency tokens to prospective investors, these investors buy tokens in the hopes that company will launch its product and the tokens will grow in value.
An ICO isn't like an initial public offering, that is each time a traditional company makes its share available to buy to the public. Actually, that is where in actuality the ICO moniker stems from.
Given there are no promises that the ICO is likely to make good on its future plans, investors have a leap of faith if they part ways making use of their money. This obviously has resulted in an array of scams billed as ICOs, which may have seen a large number of investors left out of pocket.
Listed below are five of the largest ICO scams in history.
Pincoin and iFan
The most recent large-scale ICO scam grabbed headlines in April. Two ICOs, run by the same company operating out of Vietnam, are believed to have swindled around 32,000 investors of a combined $660 mln.
The company in question, Modern Tech, packed up its offices in Ho Chi Minh city last month, making off with investors money. The scam is believed to be the biggest in ICO history.
A number of investors protested outside the vacant offices in the city on April 8, after the company refused to process cash withdrawals. The city’s administration has ordered police to investigate the fraud.
Both ICOs have been classified as multi-level marketing scams. iFan was advertised a social media platform for celebrities to promote their content to fans. Meanwhile Pincoin was promising 40 percent monthly returns on investments made. The project claimed to be building an online platform encompassing an ad network, auction and investment portal and peer-to-peer marketplace built on Blockchain technology.
OneCoin
OneCoin has been the subject of a number of investigations over the past 18 months. Officially labelled as a ‘clear ponzi scheme’ in India in July 2017, it was fined €2.5 mln by Italian authorities two months later.
Cointelegraph has previously warned readers to stay clear of the operation, as OneCoin does not even operate a legitimate decentralized cryptocurrency. Furthermore it does not have a public ledger and its Bulgarian offices were raided in January with servers seized by authorities as international investigations and court cases continue against the company.
Scandals in countries around the world summed up the fact that OneCoin is indeed a massive scam.
In 2016, over $30 mln dollars were seized by Chinese authorities investigating the OneCoin operation in the country.
The company claimed to be officially licensed in Vietnam last year as well, but this was later refuted by the country’s government. More than five countries have warned investors of the risks involved for those choosing to invest in the company, including Thailand, Croatia, Bulgaria, Finland and Norway.
Bitconnect
Long accused of being a ponzi scheme, Bitconnect discontinued operations in January in the wake of a cease and desist order from two American financial regulators.
Users exchanged Bitcoin for Bitconnect Coin (BCC) on the Bitconnect platform, launched in Jan. 2017, and were promised astronomical returns on their investments.
Furthermore the company ran a lending program, where users lent BCC out to other users to make interest depending on how much BCC they’d lent on the platform. There was also a typical, ponzi scheme referral system.
Nevertheless, the wider cryptocurrency was hardly sympathetic when the operation shut down its lending scheme and exchange platform.
A number of users have since launched a class action lawsuit against Bitconnect to recoup lost funds - amounting to $700,000 for their particular claim.
Plexcoin
This particular ICO was nipped in the bud in Dec. 2017 after being labelled a typical return on investment ponzi scheme. Plexcorp was promising investors over 1300 percent return on investment per month before the US Securities and Exchange Commission (SEC) ordered the company to stop operations.
Over $15 mln had been raised during the Plexcoin ICO. Luckily all of the funds were frozen by the SEC and founder Dominic Lacroix was jailed.
Interestingly, it was the first time the SEC stepped in and charged an ICO through its Cyber Crime Unit. Plexcoin’s offerings was also classed as a security, hence the SEC’s decision to press charges.
Centratech
Having been endorsed by the likes of superstar boxer Floyd Mayweather and DJ Khaled, Centratech was thrust into the spotlight for its supposed Visa and MasterCard debit card service that would allow users to convert cryptocurrencies to fiat.
Two of the founders have since been arrested on fraud charges relating to the ICO, which raised around $32 mln, according to Ars Technica.
The SEC highlighted the extreme lengths the founders, Sohrab “Sam” Sharma and Robert Farkas, went to in order to dupe investors.
“The SEC also alleges that to promote the ICO, Sharma and Farkas created fictional executives with impressive biographies, posted false or misleading marketing materials to Centra’s website, and paid celebrities to tout the ICO on social media.”
The US regulator is looking to seek permanent injunctions, and intends to force Sharma and Farkas to return stolen funds with interest. The pair will also be barred from serving as company officers or directors, and be banned from participating in any securities offerings.
Investors need to wisen up
As these five scams show, fraudsters will go to extraordinary lengths to swindle unsuspecting investors.
It highlights a need for investors to do their due diligence when it comes to investment decisions.
Cointelegraph reached out to American investor and founder of Skill Incubator Chris Dunn for comment on the Pincoin and iFan debacle.Overall, Dunn believes that the cryptocurrency community needs to become more discerning towards new ICOs. If not, governments around the world are likely to take sterner stances towards cryptocurrencies in general.
“The crypto community needs to promote financial education and ethical investment practices, otherwise governments will over-regulate and stifle real innovation. The most effective way to protect investors is through education. Investors need to learn how to evaluate investment opportunities, quickly spot scams, and know how to manage risk.”
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