How To Tell If An ICO Is a Scam

ICOs have provided an avenue through which the general public can invest in Blockchain ventures. The popularity of ICOs in the world of start-ups has been driven by the availability of a wider pool of investors compared to the traditional venture capital process. Additionally, the organizations are able to raise capital without following the stringent regulatory requirements of an IPO. As popular as ICOs have become, they are fraught with scams.

According to Icodata.io, there were 886 Initial Coin Offerings(ICOs) in 2017 and these raised in excess of $6 Billion. This statistic provides evidence that the ICO phenomenon is no longer a peripheral strategy and has started to occupy a central position in the crypto-startup world. ICO refers to a mechanism through which start-ups offering Blockchain-based products and services are able to raise funds by tapping into the crowdfunding concept by selling investor tokens in exchange for capital.

Due to the fact that there is an extremely high number of ICOs at any given time and that Blockchain is still considered to be an early-stage technology, most investors do not have the capacity to conduct effective due diligence on all of them. Consequently, there have been cases where investors have lost money through ICOs which had been specifically designed to fund scams and to fleece investors.

The legal and regulatory framework providing the guidelines for the operations of ICOs has not grown in tandem with this nascent technology. However, lately, ICOs have received a lot of criticism and are under scrutiny from financial sector regulators in many countries. For example, in July 2017, the U.S. Securities and Exchange Commission (SEC) communicated that securities laws may apply to the sale of new cryptocurrency and in December same year, they got an asset freeze order to halt PlexCoin’s ICO.

As ICOs investors and regulators develop tools for due diligence, knowing which red flags to look out for in an ICO can go a long way in safeguarding your hard-earned digital coins. Below, we present 7 of these red flags.

1. Opacity of the people behind the ICO

One of the red flags in ICOs is the opacity of the team behind the project. For credible ICOs the developers should be able to publicly provide their credentials and previous experience in cryptocurrency. ICOs investors should carry out a thorough research on the background of the developers and establish their capacity to execute the project.
 
In the event that the developers are anonymous, it is advisable to avoid the ICOs altogether. Further, if the developers are not known in the cryptocurrency world or very little is known about them, you may consider reviewing their social media accounts or their contribution in the Blockchain forums such as BitcoinTalk.
 
An excellent example of opacity of developer is the Plexcoin ICO mentioned above. During this ICO, the operators concealed their identity yet one of them had violated securities laws in Canada and was flaunting a court order barring him from holding a securities offering.
 
When the list of developers includes some well-known names in cryptocurrency, it is advisable to confirm with them whether they are aware of the project. This would help to eliminate the possibility of imposters hiding behind popular names in the industry.
 
2. Suspicious claims

Perpetrators of fraud make unrealistic claims and promise impossible returns. These include promises for enticing financial gains as the coin prices skyrocket after the ICO is closed. This was the case with PlexCoin who promised over 1,300% returns in 29 days. Other ICO marketing materials or whitepapers may promise impossible solutions using very bold claims about their product while offering no evidence of any new disruptive ideas/features.
 
In addition, investors must understand that it is not every venture that needs the Blockchain technology and that not everything needs to be decentralized. Consequently, you should evaluate whether the Blockchain or native tokens are necessary for the proposed solution. If the answer is negative, then there is a high probability that the project is a scam or just another solution that does not add much value and thus is not worth investing in.
 
3. Empty repositories for open-source projects

One characteristic of many Blockchain projects is that they are open-sourced meaning that their code base is often uploaded to repositories like Github or Sourceforge. If a project has promised open-source code and yet its repositories in Github are either inexistent or empty, then this is a red flag for scammers.
 
For technical investors, always check the project code against other existing products. If the project is just a copy-and-paste of an existing product or just offers minimal modifications of existing code, it is advisable to keep off the ICO.
 
A perfect case of code theft is the battle between Mobilink Network and Blocksims.io. The brain behind Blocksims had been employed to do some work for Mobilink, but when he couldn’t deliver, he was fired. He later went out to implement Mobilink’s idea using stolen code.
 
4. Inadequate escrow controls
 
Escrow is a service or a wallet that acts as an intermediary between the investors and the ICO organizers. The escrow holds the investors’ funds and the vendors should only get the funds after they have delivered their end of the bargain, usually after reaching a milestone outlined in the whitepaper. The escrow service is designed to enhance transparency, security, and confidence of all the players in the ICO.
 
Where ICO organizers fail to subscribe to escrow services or where the key holders of the multisig wallet are compromised, then becomes a red flag for a potential scam.

5. Fake Photos

There is a strong temptation for scammers to create an impression of association/partnerships with reputable institutions or individuals. Despite the availability of software tools to detect this kind of fraud, the use of photoshopped images remains a popular way to create these fake connections. An example of such an ICO scam is Blocksims ICO.

They created fake profiles of investors raving about how great their ICO is. One of the things they missed was that one of the pictures was of a Russian serial killer named Aslan Gagiev, also known as Djako. So another good technique to use is to check their team members profile photos with online facial recognition software.

6. Excessive use of catchphrases

ICO scammers have a tendency to apply the excessive use of buzzwords in order to sound technical and sophisticated. This is nothing but a trick to enhance the quality of the text while confusing the investors. At the end of it all, such write-ups do not communicate anything sensible to the investors and therefore ICOs with their excessive use should be ignored.

7. Low-quality ICO Whitepaper/Website

 

An ICO whitepaper or website is supposed to communicate all the details about the project including the project roadmap, application of the funds, team members, technical details, developers’ stake in the project as compared to what is being offered to the public, among other details. When a whitepaper or website fails to communicate these details or is full of buzzwords, there is a high likelihood of possible fraud and you should keep off.

Conclusion
 
While there is no foolproof way to shield investors from ICO scam, the above points provide a realistic formula for vetting ICOs. However, as the markets mature and more financial regulators are drawn into the sector, the likelihood of fraudulent ICOs will diminish. Before then, ensure that you undertake a comprehensive review of the ICO before investing.

Blocksims ICO Investigation Report

Over the past week a lot of information has been put online about the Blocksims ICO, and the claims of fraud. This report will attempt to set the record straight for anyone considering investing in Blocksims ICO.

In 2017 Mobilink-Coin (MC) hired a contractor by the name Shehar Yar. MC contracted Yar to build them a new website for their upcoming ICO, and to do the programming of their database.

Later that year the project was dragging out, and Yar kept asking for more money. He finally presented the client with a mockup of the site, however practically nothing worked correctly, and the site was a mess. The client started doing some research, and found on their server files from another company by the name of UTrust.

Here is a screenshot of what was sitting in the root directory of the MC site

What this shows is that Shehar Yar basically cloned another ICO website, and tried to pass it off as a fully custom site. When MC discovered this, of course they fired Yar from the team, and the project. This is fraud plain and simple, and MC is taking legal action.

In January of 2018, just a couple weeks after being fired from the project, an ICO called Blocksims launched their own website for a new ICO at blocksims.io. This site is a virtual copy of the site Yar was trying to fraudulently pass off as a custom site to MC.

In addition, Yar stole MC’s member information from the database Yar had access to when he was on the project. Blocksims then started sending emails to MC members, trying to get them to invest in Blocksims scam ICO. Here is a screenshot of just one of those emails.

Yar then had the audacity to post in public forums that MC stole the design and idea from Blocksims, which is preposterous, as you can see from this screenshot showing that Yar was on the MC team prior to launching his fraudulent ICO.

With just over 1 week until Blocksims ICO launches (my guess is there will all of a sudden be a delay so they can try to get more money from unsuspecting investors), but they have started posting videos that look convincing until you pull back the curtain. Blocksims claims that Elias Rodriguez is an expert and advisor for the ICO.

 

They claim he attended Imperial College London, and his field of study was “Inertial Confinement Plasma Physics”. An investigator discovered that Elias Rodriguez did not even attend Imperial College London. Furthermore, a representative from the College stated that in regards to the study of Inertial Confinement Plasma Physics, it really does not exist as a curriculum, the representative from the college actually laughed at the idea.

 

The truth is that Elias Rodriguez is basically an actor trying to give Blocksims some legitimacy.

We hope that if you have been contacted by Blocksims, that you do your own research before you even consider investing. If you find what we found, we encourage you to contact the Securities and Exchange Commission at www.sec.gov

Thank you for reading this report.

Blocksims ICO

Shehar Yar of Blocksims ICO was contracted to develop a website, and do some database programming for a new ICO by Mobilink-Coin.

Yar was fired after the client realized the website that Yar was essentially a clone from another website UTrust.

Yar did not create a custom website for MC as was the terms in the agreement, but instead just copied all the files from another site.
The screenshot below shows the directory with the UTrust folder still in it, Yar was foolish enough not to even change the name of the
original folder, he just copied everything over.

Then on 1/22/2018 another website was launched by the name blocksims.io representing Blocksims ICO. Yar had access to MC’s database and apparently stole all the contacts. MC members started being contacted by Blocksims attempting to scam them into investing in Blocksims fraudulent ICO.

Recently Blocksims.io created a video of their ICO, attempting to validate their offering. The video appears to be convincing, but like any scam it’s all smoke and mirrors.

The video features 2 characters, Elias Rodriguez and Uri Valles who are supposed to be Blockchain experts and advisors for BlockSims.

Smoke and Mirrors

If you pull back the curtain you will see that these to individuals are just actors to make the video look convincing. Their ICO is just an illusion designed to fool investors who haven’t done enough due diligence. This website blocksimsico.com and others like it are popping up in order to expose these scammers for who they really are!

Elias Rodriguez says on his LinkedIn account
that he has attended 2 different universities.

Imperial College London
Degree Name Postgraduate Diploma
Field Of Study Inertial Confinement Plasma Physics
Dates attended or expected graduation 1989 – 1991

Queen Mary University of London
Degree Name BEng
Field Of Study Nuclear Engineering
Dates attended or expected graduation 1985 – 1989

Pull back the curtain and we see that there are no records of an Elias Rodriguez  attending either one of these universities. A representative from the Imperial College in London stated that in regards to the study of Inertial Confinement Plasma Physics, it really does not exist as a
curriculum, the representative actually laughed at the idea.

Looking at Uri Valles we find the same claims of higher education, which are also false statements, and more smoke and mirrors. This is the first ICO scam we’ve gone after, and we won’t rest until these individuals are exposed, and their fraudulent ICO has been disbanded.

If you know of any other fraudulent ICO’s like Blocksims, please post your comments here. We will investigate any potential fraudulent ICO’s.

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