In August 2017 a cryptocurrency called PlexCoin had its initial coin offering (ICO). This is the first time the coin was available to the public — similar to a stock’s initial public offering.
It was promoted to early investors with a promise of a 1,354% return in just 29 days.
No risk warnings. No explanations of how they would achieve this. No real background on the founder. No real substance at all. Just preying on the fear of missing out (FOMO) and hype surrounding crypto.
All they had was a ‘guarantee’ of massive returns.
The founder tried to hide his previous financial crimes. The claims were bogus. And the project used fake ‘experts’ to promote the ICO.
Then the US Securities and Exchange Commission (SEC) stepped in. PlexCoin was frozen in its tracks.
After an extensive investigation the SEC uncovered…nothing. There was no substance to the project whatsoever. It was a giant scam.
The SEC froze around US$15 million in funds.
The founder, Dominic Lacroix, went to jail. A US$100,000 fine was sent the way of the PlexCoin’s parent company.
This exact kind of scam is an ‘ICO Exit Scam’.
An ICO Exit Scam is where scammers launch a new crypto project with huge hype and promotion. They hold a big initial coin offering (ICO) to raise millions.
The only problem is that these scams have no intention of delivering on the project. There will be no token generation. There are no developers. This is a cash grab, plain and simple.
REcoin and DRC both tried similar scams.
REcoin was launching a crypto backed by real estate. Diamond Reserve Club (DRC) was doing a similar thing, but backed by diamonds.
The idea of a crypto backed by real-world assets is not a new idea. These kinds of projects are supposed to deliver some surety and stability to the crypto world.
Some people claim crypto isn’t backed by anything. As such, it must be a scam. How on earth can these coins have ‘value’ without some kind of backing? Well, real-asset backed tokens are supposed to solve this.
Unless they’re like REcoin and DRC, which are just scams.
Recoin and DRC had noble ambition — well, on the face of it they seemed to. But the truth is that nothing they said was true.
The SEC went a little deeper. And they weren’t happy with what they found. Actually it’s more a case of they weren’t happy with what they didn’t find…
According to the SEC press release,
‘Alleged misstatements to REcoin investors included that the company had a “team of lawyers, professionals, brokers, and accountants” that would invest REcoin’s ICO proceeds into real estate when in fact none had been hired or even consulted.’
The head of the REcoin project was a fella by the name of Maksim Zaslavskiy. And as the SEC press release continues on to say,
‘Zaslavskiy carried his scheme over to Diamond Reserve Club, which purportedly invests in diamonds and obtains discounts with product retailers for individuals who purchase “memberships” in the company. Despite their representations to investors, the SEC alleges that Zaslavskiy and Diamond have not purchased any diamonds nor engaged in any business operations. Yet they allegedly continue to solicit investors and raise funds as though they have.’
Oh dear, Mr. Zaslavskiy, you’ve been busted.
The SEC froze all assets of Zaslavskiy, REcoin, DRC and all related companies. These two ICO exit scams only managed to raise around US$300,000. Not much in comparison to the likes of PlexCoin, but you try telling that to the poor suckers that made contributions.
The world of ICOs and crypto projects is rife with fraudsters like these. And the sad thing is that these scams overshadow all the projects that have real teams, real operations and real potential behind them.
To make matters worse even those projects with real potential often fail to undertake ICOs in a safe, user friendly and scam-free way.
$1 million gone in minutes
Take a recent project like BeeToken. Now this is a real project, not a scam at all. In fact they’re trying to build the ‘AirBnb of the crypto world’. A platform for home sharing hosting and bookings — but with a whole range of features that AirBnb fails to deliver. Whether or not BeeToken goes on to truly disrupt AirBnb, only time will tell. But that’s not the point here.
The point is that during BeeToken’s ICO (or token sale) around US$1 million worth of contributions was scammed out of potential contributors.
The BeeToken sale was hugely popular. And there was a lot of FOMO involved just before the sale. As the token countdown clock hit zero and the ICO went live contributions were flooding in. At the same time, a bunch of scammers sent out an email to all the BeeToken registered users.
These scammers had managed to get access to the BeeToken email lists somehow. The email they sent looked like an official communication from the BeeToken project. But it wasn’t. In the emails were a number of ethereum wallet addresses which they claimed were official BeeToken wallets — of course, they weren’t.
To the experienced eye it was clearly a scam. And as soon as I saw it I tried to tell everyone. But the fact is there were too many people, and too much FOMO. Scammers managed to convince hundreds of people to send in roughly $1 million in ETH contributions. That now sits in wallets that belong to only god knows who.
This kind of phishing scam is common in almost every new ICO we see. Scams sent via email, scams in Telegram chats, scams everywhere.
While scams are scary, and something people should be aware of, the other problem is the ICOs themselves. Many of these projects are bootstrapped on the smell of an oily rag until they get to the ICO stage.
They maybe get some seed funding, but the bulk of the start-up capital comes in the ICO. And remember these new crypto projects are, at their very core, high-risk start-ups.
Many of them simply have no idea on how to run a smooth ICO. In fact, many are outright embarrassing in how little thought they give to the people who are about to contribute millions to their projects.
Tomorrow my IP goes open source
I’ve been around the crypto block a few times. The number of ICOs I’ve now seen tallies up into the hundreds, probably heading close to 1,000. I’ve been watching altcoins launch ICOs since back in 2013 and 2014, during the first ICO boom. And the explosion of them in 2017 and 2018 is very similar to that time.
Sadly there’s not been a noticeable difference in the quality of the actual ICO itself. While the projects are usually better, how they run their ICO — the mechanics of the contribution process — has barely changed.
I’ve had enough. Tomorrow I’m giving away how to run a ‘perfect ICO’. Granted, nothing is perfect in this world. But having seen enough, knowing what works and what doesn’t, I’m going to explain exactly what makes for a great ICO.
This is information I could probably sell, or use to consult on new projects. But I can’t reach enough people in a short space of time that way. So tomorrow you’ll read my free guide on how to run the ‘perfect’ ICO. And, as a potential investor, how to spot the projects doing it right.
Editor, Secret Crypto Network