Two South Florida men were arrested last week in what a local prosecutor said may be the first charges under state law over the use of Bitcoin virtual currency as part of an alleged money laundering scheme.
The U.S. regulatory agency, SEC, regularly works with foreign countries governments and regulatory agencies when enforcing laws on foreign companies. There is more than ample case law and literature that will verify this. That does not apply to all, or even most U.S. or other countries laws. Most laws do not give jurisdiction to one country over another. We will use the example of the world famous KimDotCom and his website Megaupload.
As a Non U.S. citizen, the U.S.'s Department of Justice does not have the jurisdiction to send their agents to New Zealand to arrest him for violating US copyright. They must legally have New Zealand extradite him. This is obvious, or should be to most people. Which is exactly why he is still in New Zealand and not in the U.S. either in court or jail. He has been able to fight extradition for the last 6 years, and hopefully that's how it stays. However, there are certain things which does fall under the jurisdiction of foreign countries. I'm not even going to try to list them here as that isn't important.
The most important thing however is how the U.S. extends jurisdiction when they should have absolutely no legal grounds. Specifically this falls under the Dodd-Frank Act. "Under the Dodd-Frank Act, U.S. courts have jurisdiction over claims of securities violations brought by the SEC or DOJ that involve: 1) Significant steps in furtherance of a violation that occurred in the United States even if the transaction took place outside the United States; or 2) Conduct outside the United States that has a “foreseeable substantial effect” within the United States.”
The U.S. has on more than one occasion claimed jurisdiction over a foreign cryptocurrency exchange. Once for a lawsuit against Mt. Gox (Japan) from 2014 which is still ongoing in the state of Illinois in federal court. More details can be found here.
Again last year when the SEC and DOJ sought charges against BTC-e, a Russian Exchange, and it's owner Alexander Vinnik. Accordingly BTC-e's assets including domain, etc. was seized by the U.S. and charged with operating an unlicensed money service business, money laundering, and related crimes. Details of this case can be found here.
We now also have BCC lawsuits happening. Two have already been filed and a U.S. Judge issued an order to freeze their assets, they were provided 10 days to turn them over. If they decide to not do it since they can’t just be forced as the banking system can, they will then face criminal charges; Not just a lawsuit. More information here.
Now you know shit is serious when the U.S. Government acts faster on something than any other time in the last 200 years. Look no further than Tether and Bitfinex. Most exchanges pair the USDT coins and not USD. This is done so foreign exchanges don't have to worry about U.S. banking laws that any company dealing with USD is legally obligated to do but they are still able to pair things against the US dollar which we all see it listed as USDT/BTC. A vast majority of people will never notice nor even give this a second thought. Exchanges do this specifically because using the USD would subject them to U.S. banking laws but since Tether "USDT" is a coin and not money, exchanges don't have to follow U.S. banking laws. This creates an extra layer of protection for exchanges and they are able to operate much easier without accidentally breaking those or other U.S. money-laundering, know your customer, etc. laws; While they are still able to pair coins with USD thanks to the coins being set 1:1 with the U.S. Dollar.
Many in the community remember last year when Bitfinex announced they announced they were stopping all user activity for U.S. citizen accounts. This was done for a very specific reason, and if you research what Bitfinex did after the last hack of $70 million USD, you will understand why. I'm sure a lot of people that weren't around when the hack occurred wouldn't believe what the exchange did to their customers.
Anyway back to subject on hand. Including using the aforementioned way that exchanges protect themselves by pairing with USDT and not USD; Tether further protects itself by separating itself into multiple entities; Tether Limited (“TLTD“) for U.S. citizens, Tether International Limited (“TIL“) for all Non U.S. citizens for the purpose of issuing, use, etc. of the Tether coin. Tether "TIL", Tether "TLTD" and Bitfinex (owned by iFinex Inc.) are incorporated in Hong Kong. Last but not least, and most important. Tether Holdings founded in 2014, and iFinex Inc. are both based in British Virgin Islands. These are the only parts of Tether and Bitfinex that receive real money, actual US dollars, Euro's, Yen, etc.
Any exchange, wallet, etc. that accepts actual money payments dealing with cryptocurrency knows that by accepting real money they must follow AML/CTF laws of whichever jurisdiction that would apply. Hence why most all exchanges pair with USDT and not USD. Furthermore, most people are also aware that the British Virgin Islands, Cayman Islands, etc. are considered tax havens which is where both holding companies are incorporated. There is much more about Tether if anyone wants to look further. Information released in the Paradise Papers links both companies and finally sheds light on the people behind this. It should be easy for anyone following along to see the possible implications. For our purpose, all we need is know how the companies are structured. Which is why the media just reported on January 31st 2018 that the U.S. issued subpoenas to both Bitfinex and Tether.
If you didn't know what company it was that was structured in this way with multiple sister corps, parent corps, locations, etc. Most people would be baffled as to why any company would go through all that trouble. What practical reason could a cryptocurrency company, in a unregulated world, have to do that in the first place? Fraud is rampant and no one seems to ever go to jail. Even if doing the same thing in any other business would likely result in criminal charges. So why would any company go through all that trouble if they had nothing to worry about. Even if their entire goal is to defraud people such as "B-Connect", why would any foreign company dealing with crypto go through that much trouble in such an unregulated market? Number one that is substantially more expensive financially and also much more work that would have to be done. Not including the additional time and cost to hide that stuff
This is where we need to ask ourselves a question. Putting aside any thought of Tether committing fraud or whatever else is alleged. Let's just look at the basic facts: If foreign exchanges, etc. aren't subject to outside laws because they are located in a different country. Why would any of them use a coin in place of real money for pairings? Wouldn't it be easier no matter what to just pair listing against the dollar. USD/BTC or whatever fiat currency is paired against cryptocurrency. That would just create more accounting and unnecessary additional steps to convert crypto to fiat? No business would adopt a model like that if there was not a fundamental need for the extra work/cost/etc.
We first had to ask that question before we can even ask the next one. So if exchanges are protected from foreign country laws just by using USDT. Why would Tether, Bitfinex, "B-Connect" International for that matter, stop doing business with U.S. citizens if they use USDT and are not based in the U.S.? Why would it matter then if they do business with them? Maybe the reason they ensure that no U.S. citizen can do business with them is because U.S. law does still apply to them if they transact with them. By now everyone knows "B-Connect" was a Ponzi scheme, and if you have paid any attention, the U.S. is going after them tooth and nail. Yes "B-Connect" did have U.S. locations however "B-Connect" International which is the holding company of the new "B-ConnectX" is already up and running and is unable to be shut down since US citizens are not permitted to use that service now.
There is a much more serious risk at hand. A risk that will make the 2014 Mt. Gox crime, which destroyed market cap by over 80% and didn’t recover until 2017, look like a weekend robbery at a convenience store. From 2014 until January 2017 a total of 10 million USDT had been created. No one would even question if they had 10 million USD in a bank account to back each coin up. When Well’s Fargo terminated them as a customer at the end of March, start of April, the total USDT supply increased to 44 million. December 1st when the Paradise papers were released 440 million Tether. Apparently within a week subpoenas were issued, that right there should indicate the severity of the problem.
December 31st 2017 supply was well over 800 million USDT. Fast forward a month and the total is 2.2 billion USDT at the end of January 2018 when the MSM finally picks up on it. NYTimes was the first to have an article of the US mainstream news. To add to the horror show playing out in front of all of us Tether is now issuing a new USDT and EURT on the Ethereum blockchain. The 2.2 billion are on the omni layer protocol which on the Bitcoin blockchain. Note: The new ERC20 USDT and EURT are not intended to replace the USDT that are bitcoin based but rather to compliment.
The implications of this reach much further than the cryptocurrency markets. If you are unaware how Market Capitalization works I will simplify this. If the entire cryptocurrency market capitalization is 500 billion that does not mean that the equivalent amount of money has been put into the system. According to a previous report from JP Morgan since 2009 a total of 6 billion $USD actually entered into the cryptocurrency market and that gave it a 300 billion market capitalization. If you want a more detailed explanation of market capitalization you can look here.
Now what does this all mean? What does this have to do with you or anyone else? You might be saying I don’t have any USDT so why do I even need to care or pay attention. Well simply explained, if $6Bn USD can create a 300 billion market cap. $2Bn USD that technically isn’t there could remove much, much more than $2Bn of hard assets and money from the cryptocurrency market.
Tether is acting as if they are the U.S. Federal Reserve without having to guarantee the USD like the Federal Reserve and U.S. government. In the last few months leading up to the recent all time high’s (ATH) many stories came out of people taking out second mortgages so they could invest in Bitcoin. Multinational corporations have become involved. Even governments have either knowingly or unknowingly invested into it. One of the key players here was also a key player in the 2008 global financial collapse. Only a couple things can happen:
1. Tether has 20%-100% of the USDT backed up with US dollars. Everything should be okay except cryptocurrency now has a central bank.
2. They don’t have US dollars to back it up. Exchanges lock the doors as everyone creates a run on the bank trying to get out before or during the crash, investors lose everything, all $$$ in the system is extracted out by Tether. That will have a detrimental effect on global markets and could trigger the collapse of the stock market bubble which will also take out the housing bubble.
No matter what, this is going to be a very painful ride. Even if they do have the money, the US will make sure it doesn’t continue. Chances of them having the $3Bn as one of their insider friends stated are slime to non existent.
On the bright side, we will witness the greatest theft mankind has ever seen.
Last updated: February 02, 2018
This is not legal or financial advice and as such Author assumes no liability. Always consult with a licensed attorney or legal representative concerning any laws that may be applicable in your jurisdiction.
Author assumes no responsibility for errors or omissions in the contents on the Service.
In no event shall Author be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the Service or the contents of the Service. Author reserves the right to make additions, deletions, or modification to the contents at any time without prior notice
The premise of cryptocurrency is simple, a new ICO launches, claiming to offer lucrative returns for investors. Investors can’t believe their luck and clamor to buy in. The business runs for some time on the back of the invested capital, but, sooner or later, disaster strikes and the company shuts down, often with no explanation. After a while, it becomes obvious that the company is gone for good, along with the invested funds. The poisoned chalice of crypto’s decentralized nature often means that investors are left in the dark when trying to recoup or trace their pilfered funds.
How to spot an exit scam
Many exit scams have tell-tale signs that investors should look out for. The financial content site Investopedia has a handy list of key characteristics. First, exit scams often have inconsistent or misleading information about the team behind the project. When scouting potential investment opportunities, investors should scour for information on key members of any ICO. It’s important to remember that online credibility can be faked by purchasing likes, profiles and followers on social media. Celebrity endorsements with verified accounts could also ring alarm bells for investors. A fake Twitter account purporting to be Elon Musk, with a supposedly verified twitter account, raised over $155,000 as part of a 2018 Bitcoin scam. Investors should verify the credentials of backers, team leaders and promoters of cryptocurrency projects. Although individuals may seem to be legitimate at first glance, brand new social mediaprofiles and few followers or connections should raise eyebrows. The most significant characteristic unifying exit scams in cryptocurrency is the promise of a huge return on investment (ROI) — chances are that it’s probably too good to be true. Investors should always look through even the smallest details of what they are required to invest and what the company purports to be able to give back to them. ICOs usually come with a white paper, setting out the design details of the project along with a business plan and other information. Investors should pursue all available information for ICOs, as any vagueness in the white papers should signal a big red flag. When investing in an ICO, it’s vital to get an understanding of the business model. Investopdia writes that anything powered by concept alone should be a warning to anyone tempted to buy in. Although cryptocurrency projects can and do launch off the back of technological advances, investors should be wary of projects looking to gather millions of dollars before taking a sober look at the project’s ability to return the investment from the published information. Heavy promotion of an upcoming ICO can also be a sign of an exit scam. Past scams have employed bloggers to promote via numerous forums. Ads both online and in print media could also be suspicious.
$2.9 billion PlusToken scam could be largest exit scam ever
A 2019 report shared with Cointelegraph by the cryptocurrency and blockchain forensics company Ciphertrace dubbed 2019 the year of the exit scam and highlighted the billions of dollars stolen in multiple scams this year alone. The report shines a light on what, if confirmed, could be the biggest crypto scam ever, with an estimated loss of around $2.9 billion after Chinese police uncovered an alleged Ponzi schemeinvolving the South Koreanwallet provider and exchange PlusToken. Although more is being uncovered about PlusToken, mystery still surrounds the key events. Ciphertrace reports that the platform has enshrouded several Chinese nationals, the government of Vanuatu, the Chinese police and the company’s co-founders — a South Korean man operating under the alias of “Kim Jung Un” and a Russian known only as “Leo.” The alleged PlusToken scam centers around an app with which the wallet provider claimed investors could invest in PlusToken (PLUS). According to the report, the firm claimed that the token, based on the Ethereumblockchain, was developed by a major technology company. PlusToken is also said to have falsely stated that it could deliver wallet holders an ROI of between 8% and 16% per month, with a minimum deposit of $500 in crypto assets. Ciphertrace also reported that no verifiable source of revenue existed other than the proceeds from new membership. Those were onboarded per the traditional method of a Ponzi scheme, which require a constant stream of new investment in order to support its semblance of growth. Investors were incentivized to recommend new users with an invitation, which was the only way to join. Although this was enough for some members to dismiss the legitimacy of the project outright, Leo, the company’s co-founder, published a press release that claimed he had met with Prince Charles, the future head of the English royal family, providing photos as proof. Ciphertrust reported that it had contacted the Prince Charles Foundation, which confirmed that Leo had indeed attended the event, but would not provide other information about the individual due to European Union General Data Protection Regulation, or GDPR. PlusToken’s fate was seemingly sealed on June 28, after members of the Chinese police touched down in Vanuatu, detained six people involved with the project and extradited them back to mainland China. Ciphertrace reported that the so-called “PlusToken Six” were either Vanuatu citizens or applying for citizenship at the time of their arrest. Soon after, PlusToken members found that they were unable to withdraw funds from their accounts. Customers were informed that withdrawals via the app were frozen due to “technical difficulties.” By June 20, the PlusToken app had ceased operations due to purported system maintenance. For investors, there seems to be no secure lead on the final resting place of the allegedly billions of dollars of stolen funds. The Chinese government has yet to comment. A July 12 post from PlusToken stated that the six Chinese individuals were simply service users and not actually involved with the running of the company itself, stating that users should ignore the rumors and not try to log in until they receive confirmation that the servers are back online.
On April 9, 2018, two ICOs — iFan and Pincoin — operating under the umbrella of company Modern Tech based in Vietnam, went silent after reports outed them as scams that had scalped 32,000 investors out of an alleged $660 million in tokens, according to Tuoi Tre News. Victims claim that the damages amount to roughly 15 trillion Vietnamese dong ($660 million) in token sales. Angered investors held a demonstration outside Modern Tech’s Ho Chi Minh City headquarters on April 8. One of the initial characteristics that could have alarmed investors was the fact that Pincoin offered service users bonuses for successfully bringing other people on board. Pincoin did initially pay out cash until January 2018, when the company switched to iFan tokens, TechCrunch reported. The owner of Modern Tech’s office building said that the company left its offices in March and that no one knew their current whereabouts. The firm left behind only an incomplete website that is now inactive. Modern Tech initially tried to pass itself off as a mere representative of both coins in Vietnam, prior to media reports confirming that seven of its Vietnamese executives were in fact behind the projects. TechCrunch reported that the ambiguous mission statement from the then-functional site is typical of the vague and jargon-filled copy used by exit scammers:
“The PIN Project is about building an online collaborative consumption platform for global community, base on principles of Sharing Economy, Blockchain Technology, and Crypto Currency”
Financial scam directory Behindmlm released a report in February 2018 that found its buy-in method was typical of an ROI Ponzi scheme. Pincoin’s website is currently down, though iFan’s is still online.
QuadrigaCX — regulators catch on
The death of 30-year old Gerald Cotten shook the crypto world — not only because Cotten was the co-founder and CEO of Canada’s largest cryptocurrency exchange, QuadrigaCX, but also because his control of the passwords and keys to accounts rendered all the assets on the exchange forever inaccessible after his death. Cotten took over $195 million of stolen cryptocurrency with him to the grave. Related:QuadrigaCX Users Lose $190M as Speculations Over Cotten’s Death Swirl Commenting on the May 9 Ernst & Young report, Ciphertrace said Cotten had played fast and loose with customer funds for many years in order to support a lavish lifestyle for both himself and his wife. Cotten allegedly exercised complete control over the exchange and used his position to perform “unsupported deposits” — i.e., fabricated transactions not represented by either fiat or cryptocurrency. Cotten also used significant volumes of customers’ cryptocurrency via transfers from the platform into other exchanges he controlled. As per the EY report, Cotten shifted significant amounts of fiat and cryptocurrency between alias accounts, although less than 1% of these transfers was supported by documentation. Ciphertrace notes that as the admin, Cotten was in a perfect position to hide his fraudulent activities. In a pattern that may now seem familiar, Cotten used customer funds to pay for QuadrigaCX operating costs after the company suffered liquidity issues due to his reported fraudulent use of user deposits. As QuadrigaCX began to struggle to stay afloat, EY reported that Cotten gambled customer funds in off-platform margin accounts to meet margin calls. The report also states that Cotten traded unsupported deposits for legitimate funds thereby generating artificial trading markets, abused his position to override Know Your Customer requirements and hoarded all passwords:
“The Monitor understands passwords were held by a single individual, Mr. Cotten and it appears that Quadriga failed to ensure adequate safeguard procedures were in place to transfer passwords and other critical operating data to other Quadriga representatives should a critical event materialize (such as the death of key management personnel).”
As of April 12, EY estimated that Quadriga held around $20.8 million in assets and around $160 million in liabilities. The debts and assets are spread over three subsidiary companies, 0984750 B.C. LTD. (the “Quadriga Estate”), Quadriga Fintech Solutions and Whiteside Capital Corporation. On July 31, the Supreme Court of Nova Scotia approved over $1.6 million in fees for parties seeking remuneration from the exchange, according to court documents.PDF) seen by Cointelegraph.
CFTC action launched after $147 million BTC scheme
On June 18, 2019, the United States Commodity Futures Trading Commission (CFTC) initiated a civil enforcement action against now-defunct Control-Finance Limited for a scheme involving $147 million worth in Bitcoin. It is alleged that Control-Finance Ltd. defrauded over 1,000 investors by laundering around 22,858 Bitcoin. In mid-September 2017, its website was abruptly taken offline, payments to clients were suspended and advertising content from social media accounts was deleted. The firm initially said that it would reimburse customers by late 2017. However, the company allegedly began transferring laundered Bitcoin by using the crypto wallet service CoinPayments. According to Ciphertrace’s Q2 2019 Anti-Money Laundering (AML) report, the CFTC complaint charges the company and its founder Benjamin Reynolds with:
“Exploiting public enthusiasm for crypto assets by fraudulently obtaining and misappropriating at least 22,858.22 Bitcoin from more than 1,000 customers through a classic high-yield investment (HYIP) Ponzi scheme called the Control-Finance Affiliate Program.”
Per the CFTC, the company claimed that investors who buy Bitcoin through the firm would be guaranteed daily profits thanks to their team of expert cryptocurrency traders. The complaint also stated that the firm falsely claimed market volatility would ensure funds invested through Control-Finance would result in profit. The CFTC also alleged that Control-Finance misleadingly promised that it could earn customers a 1.5% ROI daily and 45% monthly. Control-Finance is also reported to have sent partial amounts of new clients’ BTC deposits to other customers, which were disguised as profit from trading, a tactic typical of Ponzi schemes. The legal action seeking civil monetary penalties and permanent trading bans continues.
Co-owner of Bitmarket found shot dead after alleged exit scam
On July 8, the Poland-based exchange Bitmarket shut down, citing liquidity issues. According to Ciphertrace’s Q2 2019 AML report, the shutdown cost users around 2,300 Bitcoin, approximately $23 million. Users attempting to log on to the site were met with the following message:
“We regret to inform you that due to the loss of liquidity, since 08/07/2019, Bitmarket.pl/net was forced to cease its operations. We will inform you about further steps.”
Ciphertrace reports that Bitmarket had a history of partners pulling out. In 2015, the firm lost payment processors CashBill and BlueMedia after the companies' banks requested they end their working relationship with Bitmarket. PKO Bank Polski, Bitmarket’s own bank, also terminated its relationship with the firm only six months after Bank BPH had done so earlier in 2015. Bitmarket’s two founders, Marcin Aszkiełowicz and Tobiasz Niemiro, have contradicting accounts about the misplaced user funds. Aszkiełowicz claimed that the exchange had been hacked for 600 BTC in 2015, an incident from which the company was unable to recover. Niemiro, however, claimed that he was not responsible for activities on the exchange. Niemiro also purported to have been told that the company was purchased with a deficit of 600 BTC, which he allegedly repaid with his own money. Niemiro said he could not confirm that his partners had indeed used the money to purchase the 600 BTC. Two weeks after the interview, Niemiro was found dead in a forest near his home with a gunshot wound to the head, which the police deemed to be self-inflicted. The District Attorney’s Office stated that it is not looking into the involvement of third parties in Niemiro’s death, but are still actively investigating the misappropriation of funds.
Hello! My name is Kristina Semenova, I am the Head of Investors Relation Department at Platinum, the world’s number one business facilitator. Our team knows how to start ICO/STO in 2019! Why are we so sure? Well, our experience speaks for itself: Platinum.fund But what is the difference between ico and sto? What is the cornerstone of ICO marketing strategy? You will know this after finishing the UBAI courses! Here’s just a quick preview of our Short Course lesson. Real World Examples Multinational accounting firm Ernst and Young found that $400 million of the $3.7 billion USD raised from ICOs (as of January 22, 2018) had been stolen. That is, up to 10% of all ICO funding is virtually being stolen from investors. Though ICO scams are the most common method of theft in the crypto world, some projects will actually operate for a period of time before disappearing with the money. Like in a Ponzi scheme, an exit scam may be planned for later, sometime after a manipulated pump; or some other time the team believes is most opportune to take the money and run. Giza: Giza marketed itself as a platform within which different cryptocurrencies could be stored securely. But after raising $2.4 million in one month, the team deleted the website and stopped replying to emails. Investors were duped by a very convincing whitepaper, and actors had been hired to appear in photographs promoting the project. No investor funds have ever been recovered. Centra: The SEC put an end to fundraising for the Centra ICO and charged the founders Robert Farkas and Sohrab Sharma with orchestrating a fraudulent ICO after they raised $32 million USD. They were promoting the ability to develop financial products backed by VISA and Mastercard, though it was later found that neither partnership was real. One of the major red flags in the Centra project was the use of celebrity endorsements for publicity, reportedly paying champion boxer Floyd Mayweather a significant sum to promote their project. Who wants to leave their Blockchain investment decisions up to Floyd Mayweather, regardless of his unbelievable skill as a boxer and regardless of his own financial success? He should still not influence where you invest your money! Ponzi Schemes: Bitconnect: This is the most infamous Ponzi scheme in the history of cryptocurrency, and certainly the most damaging. Bitconnect was a Bitcoin-based project that rose to an all-time high of $463 per token on the back of a fictitious trading bot. The Bitconnect scam operated by paying dividends to users, proportional to the number of tokens they held and the number of referrals they made. The BCC tokens were exchanged for the users’ Bitcoin, and the highly sophisticated and wildly successful trading bot would trade BTC for them and distribute profits as dividends. The value of the dividends offered was approximately 1% of the initial investment per day. In other words, that is approximately 3,780% per year in cumulative gain! The referral system was capitalized upon most heavily by many of the biggest crypto YouTube channels, including CryptoNick and Trevon James, both of whom are now under investigation by the Federal Bureau of Investigation. Shortly after the Bitconnect Token reached its all-time high, they received cease and desist orders from the security regulators of Texas and North Carolina, which caused the owners of the Bitconnect exchange to shut down operations, and the price to plummet. Davorcoin: Davorcoin was a lending platform very similar to Bitconnect. And Davorcoin was farcically promoted by the same Trevon James crypto Youtuber who promoted Bitconnect, and is currently under investigation by the FBI for promoting Ponzi schemes. The Texas State Securities Board, in likening Davor to Bitconnect, stated that “DavorCoin is telling investors they can earn lucrative profits by investing in a lending program based on a new cryptocurrency known as davorcoin. Investors allegedly purchase davorcoin and then lend it to DavorCoin”. Davorcoin promptly plunged from an all-time high of $180 to very close to zero after a cease and desist order was made against them on the 2nd of February 2018. Useless Ethereum Token: Despite brazenly stating in the name of the project that the token has no use, the UET managed to raise $340,000 in its crowdsale, and saw a significant pump of over 300% on the HitBTC exchange in February of 2018. The scam was an obvious case of pump and dump, with the total trading volume for UET crashing back down to as low as $3 per day, after reaching as high as $350,000 per day during the pump. It is currently an unfortunate consequence of the decentralized nature of cryptocurrency, but there is a distinct lack of recourse for scammed investors. It is wise to become as well-acquainted with the various indicators of good and bad ICOs as you possibly can. In weighing the factors that will allow you to avoid expensive mistakes, ask yourself in whose favor are the terms of the ICO slanted, yours or the teams? To what extent are you actually likely to profit from this investment? Cryptocurrency is inherently a grey area, whether you are investing in it or not. Investing is another inherently grey area, no matter what the area or object of investing might be. Laws and regulations are not always able to keep up. Trying to define and prove what was or was not a scam is not likely to be as simple as the scammed investor would want it to be. A project can be set up in certain ways to avoid being technically classified or provable as a scam, but the unprepared investor can still be burnt or scammed just as badly. Now we look at more individual indicators that can help you form a valid impression whether or not an ICO or even a fully-fledged exchange-listed coin is a scam or a bona fide investment opportunity. Common Signposts Contrasting Scam & Legitimate Projects Presale Bonus/Token Release If the ICO allots massive bonuses to team members, you may leave yourself open to getting dumped on by presale investors if you buy when the project tokens are listed on an exchange. Likewise, if the project has a short lock-up period for developers and founders, you run the risk of them selling as soon as the token is listed on a major exchange. The token release schedule for the founders of a worthwhile project should show long-term team commitment to that project. The Jibrel Network team tokens will be locked up for 5 years before release, and they had no early investor bonus in the main sale. Both of these factors instilled confidence in the JNT ICO investors, and the tokens were sold out weeks before the ICO was due to end. No Presale lock up If Presale investor tokens are not locked up at all for any period after listing, that could easily be a set up for an exit scam after the initial listing. No presale lockup for early investor tokens is a crystal clear warning, the project may be fatally rigged toward those in the inner circle, with little commitment to the long term health or success of that project. Unsolicited Offers or Unasked for Additions to Groups Characters running scam projects will often add you to Telegram groups out of the blue or send you unsolicited emails with information about their project. Telegram is the most widely used messaging app in the cryptocurrency community and you should familiarize yourself with it to keep yourself in the loop for specific projects in which you invest as well as all kinds of other relevant crypto info. You can adjust the settings on the Telegram app to disallow anonymous additions to cryptocurrency projects if you find yourself bombarded with offers by scammers. Reputable projects at the ICO stage will spread by word of mouth, or by eloquent and meaningful articles posted on their Medium page. A project with serious potential does not need to actively seek participants for their ICO like that. They will often be able to fill their ICO hard cap in a matter of hours, or even just minutes! Anonymous Team Alarm bells, again, immediately, if the project has minimal online presence. The individual team members could be mere fabrications. The entire project could be a farce by utterly inexperienced characters. What if the project leaders are simply unaware of the importance of a strong social media profile? That in itself would be too strange to ignore. Top-level projects will have team members with experience in crypto and the LinkedIn accounts for those members will be easily accessible right there on the project website. You should be able to easily see and evaluate each individual’s experience in their field and ascertain what they bring to the project team. Bitconnect’s anonymous team should have been the only deterrent prospective investors needed to discourage them from putting money into that doomed project. Ethhorse, a current project with anonymous founders and operators should be steered clear of at all costs for the same reasons. Community Atmosphere The subreddits or Telegram groups of scam projects will often feature moderators that do not allow any kind of criticism in the group chat. If, in the process of your due diligence, you encounter didactic admins that only wish to silence your questioning of certain aspects of the whitepaper or mechanism of the tokenomics , you should be concerned. Similarly if you see a coherent critical reply attacked by many different users who refuse to engage the substance of the point being made, that may be a subreddit infested with bots. Projects that have nothing to hide will allow free debate in the chat. Ideally, they hope to develop a positive community that is itself an asset to the long-term success and overall strength of the project. Good projects do not need to automatically brand all criticism as Fear Uncertainty and Doubt (FUD). Whitepaper One common tactic of scammers is to produce a whitepaper that uses too many buzzwords, and deliberately obfuscates and overcomplicates the explanation of the problem and/or its solution. A good whitepaper clearly and concisely lays out the problem and answer, as well as provides compelling arguments why a Blockchain solution is preferable to the current solution. Another point of concern is a whitepaper that gives unrealistic time frames and goals. Bitconnect’s almost comically optimistic profit projections are a prime example of this, as are the 1,354% yearly gains promised by Plexcoin. Respectable projects will set out development timescales in terms of quarters or years, rather than offering immediate profit projections, which are simply a red flag. Advisors/Connections in the Cryptoworld The most prestigious projects will already have partnerships made before the ICO stage, and the worst ones, i.e. the scams, will not mention any such partnerships. Icon (ICX) for example was spawned from a South Korean project named The Loop, a collaboration between 3 Korean universities and the DAYLIFinancial Group. They boasted an advisory panel consisting of the legendary investor Don Tapscott, Jehan Chu and crowdfunding expert Jason Best. On top of a solid team of advisors, good projects will also be visible at major Blockchain events such as the Consensus, and the World Blockchain Forum, etc. Scam projects will be unable to inspire this same level in confidence. As an investor, you should sense a certain presence and expect a certain feeling of trust that should guide you in your investments. After all, it is actually a people-to-people thing you are doing. Key Stress points upon the Timeline to Identify Scam Projects Post Whitepaper Release The period in the immediate aftermath of the release of the whitepaper can also be decisive in establishing the validity of a project. How a team copes with the roadmap that they have laid out for themselves is key. Valuable insight into the operational efficiency and commitment to the project can be gleaned from the quality of and amount of code committed to GitHub. If you have any experience in computer programming you can see how clean and orderly the code is, which gives insight into the skill of the developers, and in turn the quality of project leaders’ decision-making in hiring team members. Scam projects will have little or no code committed to GitHub, or at best it will be copied and pasted from other projects just to cover their tracks. Start of ICO Sometimes, a scam project, or other project in which you would be better off not investing, will change the terms of the ICO just before the ICO starts. The Key (TKY) ICO doubled the price of tokens on the day before the ICO was due to take place, because the price of NEO had risen so drastically. Currently, the TKY token price is still only half of its ICO price. Initial investors are faced with the prospect of a 50% loss on their investment. Exchange Listing Some particularly greedy scammers will create a scam project with the intent of selling tokens in the ICO for BTC and ETH, and then pumping and dumping their share of the tokens immediately after listing. The team of fraudsters behind Monero Gold used this method after the crowdfunding of their useless ERC-20 token. After listing on CoinExchange.io, the team dumped their tokens until the exchange finally ceased trading. Although it is not uncommon for ICO tokens to sold after listing (just like can happen with shares of stock after an IPO), if the price does not stabilize and massive sell walls are continually placed, a scam is likely taking place and the token is being dumped. Fake Ethereum Twitter giveaway You may have noticed Ethereum creator Vitalik Buterin’s twitter handle has been changed to Vitalik “Not giving away Eth” Buterin in recent months. This is because a group of devious scammers had created fake accounts with almost exact replicas of his profile (deviating by only one character). The fake accounts promised to deposit 1 whole ETH for every 0.1 ETH the potential sucker deposited into the wallet address provided by the scammer. These fake account “Ether giveaway” scam tweets were set up to be sent in just a matter of seconds after the real person tweeted, and usually always appear immediately after the tweet of the real public figure. Fake bot profiles then came into play, thanking the fake Vitalik, or fake Elon Musk, for holding up their end of the bargain and depositing the ETH as promised. One scammer, or group of scammers, managed to fill a wallet up with almost $20 thousand worth of ETH, which they transferred out, never to be seen or heard from again. Effect of Scam Customers, Upon the Affected Parties Of course, this is no fun for the targeted public figure either. They need to take steps to avoid being targeted again. This will mean changing their handle, their username, or making their accounts private. However, the injured party with whom we are most concerned is the unfortunate scammed social media user, who has no chance whatsoever of getting his or her funds back, ever. It is a harsh lesson to learn. But it is a fact of crypto reality. Nearly every one that trades crypto will at least be exposed to frauds or scams in one way or another. In this case, we think it is better to learn about scams by studying them, rather than learn from your own unfortunate and expensive experience. In the case of Mr. Buterin, these incidents were awful public relations for the Ethereum project. It had only been a few years since cryptocurrency as a whole was primarily associated with criminality and seedy transactions on the Darkweb. Any connection with unscrupulous behavior is best avoided at all costs. Negative associations could have been particularly damaging for Ethereum’s brand because the vast majority of ICO fraud is committed using the ERC-20 token as the template for the scam tokens. Any and all the scamming or fraudulent behavior in the cryptocurrency ecosystem is bound to have a negative impact on the speed at which mainstream uptake finally takes place. Cryptocurrencies, as an emerging asset class, will be painted in the worst possible light. Crypto is aiming to, and is in fact in the process of, causing great disruption in traditional centralized finance and business. Mainstream media organizations are also part of that traditional centralized economy. Press coverage will be damning. Something is happening here, but Mr. Jones doesn’t know what it is. Legal Recourse for Scams We clearly understand, there is a possibility of being scammed. We know the scams are happening. The SEC has made some arrests and actually charged people for operating fraudulent ICOs. But it is a struggle to deal with the flood of ICOs coming from anywhere at any time. The SEC filed charges against two founders of a purported financial services startup for orchestrating a fraudulent ICO that raised more than $32million from thousands of investors. As you know from the ICOs we have covered so far, the lack of regulation allows for direct contact and dealing between the entrepreneurs, business owners and potential investors. While we believe this is a blessing according to the founding principles of Bitcoin and other alternate Cryptocurrencies, because it frees us from traditional roadblocks, middle-men, and all kinds of time-consuming procedures; it also leaves investors in a place where there is often little to no hope of ever recovering funds lost in fraudulent schemes. Actions after a Successful ICO Good post-ICO practice is characterized by stringent security, well thought-out legal strategy and clear communication. Many projects have paid the price in damage to their reputation for failing to adequately guard customer information, leaving themselves open to phishing attacks by fraudsters. Investors in the Enigma project had half a million dollars stolen from them; and a whopping $8.4 million was defrauded from investors in Veritaseum via phishing attacks. After a successful token distribution, the team’s main focus is initially on switching the enterprise from one primarily focused on fundraising, to superficially at least, a fully-fledged, functioning business. This involves removing most of the token sale-related content from their main webpage, sending newsletters to all successful ICO participants, and sending refunds to those who may have missed the deadline or the hardcap. Then, with the stressful and complicated fundraising stage finally concluded, a portion of the funds raised can be assigned to fuel the growth of the project community. This can involve hiring community managers, forum admins, and social media managers to outsource the job of keeping investors in the loop. The founders can focus on growth strategy and product development. The cultivation of a thriving and energetic community is extremely important. The community will give you free marketing for your product and your business. Community members who believe in the project, and are engaged by professional moderators, can give you very effective promotion to other prospective investors. Communication with community members is a great way to test ideas and gauge sentiment related to various aspects of your project. The project leads must set aside adequate funds for lawyers. The project will need to address potential future or imminent problems with regulators, at the very least. The transition from fundraising project to full-fledged business can be incredibly challenging, and even more stressful than the ICO itself. The main thing to remember is that your pre-sale and ICO investors are not just silent investors waiting for a return. They are the early adopters of your solution, of your product; they are the community and promoters of your project; and they are the individuals with a vested interest in the financial success of your venture. The ICO environment is not as heavily regulated, so quarterly and/or semi-annual reporting is not required the way it is in the traditional world. That means your own style of effective communication about the progress and key developments on your project matters even more. In the ICO world, you communicate with your press releases, social media, and Medium posts. You also communicate by the very nature of your relations with your exchange, and relationships with your cornerstone investors. Effective communication and good business relationships can play a prominent role in the success or failure of your venture (by token liquidity and valuation). If your investors start to lose interest, and stop trading your token on the exchange, liquidity will dry up and cause increasingly volatile price swings. You need to keep certain things in mind, and follow effective practices to maintain a happy and motivated community. Social Media & Medium In addition to your website, your social media & Medium blog most likely formed a significant part of your ICO preparations. Your purpose pivots after the ICO from one of promotion to one of communication. Consistent, informative and material Medium blogs, also Facebook and Twitter updates, ensure that investors remain engaged and well-informed of what the company is up to. Frequent activity in this space makes investors feel much more comfortable. You can foster a kind of organic community expansion that is consistently advertising your project to potential new members. Cornerstone Investors & Exchanges As we mentioned, your relationship with investors in the ICO world is different from that of the traditional silent IPO minority equity partners. Consistent, Transparent & Honest communication is incredibly important here. Even if an ICO is struggling to overcome a problem or whatever issues are occurring, honest communication from the team is key to business survival. You should think of and treat your exchange like a business partner too, a very important one at that. Exchanges provide liquidity for you and your investors. That liquidity is like the blood for your business. Many top exchanges demand nothing less than absolute honesty and integrity, it is imperative to maintain strong and comfortable relationships with exchanges. Everything we have said so far, also applies to your Telegram channel and forums too. These give you another great opportunity to build a thriving community. Team members and investors can enjoy lively debates in their Telegram channels. This can be constructive discussion, or critical commentary too. But it is always valuable as a direct link between the team and the community. It is always good to know how people are feeling and what they expect from you and your project. You are able to use your Telegram channel and forums to consistently adapt your marketing and communication strategy. Keep your investors as happy and comfortable as possible, and you will be more likely to attract new investors and allocations. Other forums around the internet operate more or less in the same manner as Telegram. After a successful funding round with the hardcap reached and time to spare, legal counsel has been secured, and the community is flourishing, the team will prepare for their first listing by paying the exchange fee and waiting for the announcement by the exchange. Unless they are willing to pay exorbitant fees for an immediate listing on Binance for example, teams will usually settle for an initial listing on a second-tier exchange. The fee charged by an exchange depends on many different factors that we will cover in more detail in the next section. ICO Company actions after a Successful ICO Real World Case Study The Basic Attention Token (BAT) project, when used in conjunction with the Brave Browser, allows users to pay micro-fees in BAT to their most-used sites. The idea was conceived by Brendan Eich, the inventor of Javascipt and former CEO of Mozilla Firefox. Investors absolutely pounced on it at ICO and the project raised an amazing $35million in under 30 seconds. The BAT/Brave project has delivered on time on nearly all of its targets, helped in no small part by having a working product, the Brave Browser, for over a year before the token launch. The project secured a listing on the premier exchange, Binance, in November 2017. A project can suffer through a disappointing funding phase and, for example, fail to reach 75% of its hardcap. The team will be only partially funded. Though they may be able to initiate the project, the value proposition of the token has been compromised, potentially forever. The market has spoken. There is limited faith in the team’s ability to complete or carry out their project. Failure to reach a hardcap is a serious obstacle on the project road map. This will mean massive revisions to the timescales for development and listing. Such a project may have to be content listing on decentralized exchanges for a period of time and they will lose any post-ICO hype that could have helped the project price to “moon” early on. There is less money to be allocated. Each section of the business will be underfunded compared to the original plan. There can be delays in code development, exchange listing, marketing and community development as well. Calling the Tezos ICO a disappointment might seem strange considering they raised over $232million. But this open-source, smart contracts fintech platform became a victim of its own success post-ICO by devolving into multiple class-action lawsuits between the founders and its foundation chairman. They suffered from a distinct lack of clearly defined roles and expectations on key positions. There was infighting at the boardroom level. This all caused an as yet unresolved delay in listing and development. This is also one example why a capped ICO can be more desirable for investors than an uncapped ICO. If the team have a set amount of capital to work with, an amount that isn’t absolutely ridiculous, like in the case of Tezos, perhaps the resultant greed and discord is less likely. Although it may not be so easy for speculative investors to make a profit from an uncapped ICO with such a massive initial market cap, it is a very impressive feat of fundraising nonetheless. Tezos’s post ICO market cap of $232million is already 64th of all projects, and would have to perform brilliantly on listing to maintain this position. Company actions after a Failed ICO Failed ICOs can mean either fundraising initiatives that have failed to reach the softcap and will therefore not be economically viable, or fraudulent projects whose sole intention was to steal from investors and do an exit scam. We’ve already covered scams and fraud projects in detail, but what happens when an ICO just fails to raise the requisite funds? Projects that are legitimate, with honest founders and developers, refund the ETH or BTC deposited by investors as quickly as possible if the softcap is not reached. The same process that is followed by ICOs that are oversubscribed is employed by those that have failed to raise enough capital. The process of returning funds back to the sender ideally should take a period of days, but more likely will take a few weeks. The Sappy Network, advised by Dan Tapscott, failed to come anywhere near to their funding goals. They are currently in the process of sending all investor funds back to the wallets from which they came. The statement from the founders read as a textbook example of how you should react to failure with the founder stating “In the spirit of transparency and honesty, we are sharing with the community that we did not reach the soft cap, and thus we will be honoring our terms and conditions and returning the Ethers to all contributors” Exchange Listing A bottleneck developed in the ICO market after the explosion of crypto prices in 2017. There was a massive increase of ICO teams on all stages along the pathway from start-up to fully listed crypto asset. Certainly, a huge part of the value proposition for both the token and the project depends on securing a listing on an exchange. It is precisely the liquidity of the token as a valuable asset on a free market exchange, that determines or even defines its value. The liquidity is what makes tokens attractive to investors, but that liquidity simply does not exist without a platform for the exchange. Unfortunately for new projects, the balance of power is heavily weighted in favor of large centralized exchanges that can pick and choose which tokens to list, and the timescale within which listing will occur. Each large exchange has its own list of pros and cons as well as its own specific procedure for coin/token listing. They also have their own particular ethos regarding the type of projects they prefer to list. ERC-20 tokens will be available for trade immediately on decentralized exchanges (IDEX Forkdelta) but those platforms are generally quite low volume, and certainly not a long term solution. Projects must often pay huge fees to be listed on the larger centralized exchanges. At first those fees will be prohibitive. The usual route is to initially list on a more reasonably priced smaller exchange like Kucoin or Gate.io. Listing Process Major centralized exchanges have the power to list anything they want, and they also each have a unique structure that projects must adhere to if they wish to be listed. Each potential new listing will undergo a rigorous examination by the exchange operators to test the feasibility for listing the token. An exchange will likely have forms available on its website that you can fill out to give them all the necessary initial information. If a particular project and token qualify for listing, the team will invariably be put under a NDA, Non-Disclosure Agreement, to avoid any insider trading or other regulatory problem s. In the case of larger exchanges like Binance, there is a period within which owners of a newly listed coin or token can transfer them to the exchange in preparation for trading. This is a fantastic opportunity for traders to make use of the likely pump that occurs after a new token is listed on a large exchange. It is common to see up to 100% increases on the first day of trading, and a subsequent dump of up to 50% or more can follow. This allows traders holding the coin already, to sell for a good profit, and maybe buy back in at a much lower price too, if they think that is a good idea. Exchange Fees There are no definitive figures available to the public regarding fees that major exchanges charge new projects to list. Binance, Bitfinex, Kraken and Bittrex have all been quoted as saying that they do not charge any fee at all but this is almost definitely untrue. Knowledgeable industry insiders estimate between $500,000 and $1,000,000 USD for listing on a top-tier exchange. (There have been more rumors of 7 figure exchange listing fees since January 2018 too). This figure will vary greatly from project to project. Various factors can affect how an exchange determines the fee for a particular project. These are some of the most important ones: Market Maker Service Required Whether or not the client project requires liquidity services directly from the exchange, or can connect proprietary ones via API, will lead to a huge reduction in listing cost. Type of Token (ERC-20 NEP-5 or DAG) Not all tokens are created equal in the listing process. ERC-20 tokens and BTC based tokens have code architecture that will almost certainly be preferred by the exchange. NEO based tokens (NEP-5) such as Ontology will be far most costly to integrate because separate new wallets have to be built to facilitate NEO transactions. The costs involved in integrating Direct Acyclic Graph projects such as Nano into the exchange structure are even worse. Expected Daily Volume Exchanges derive their profits largely from transaction fees and withdrawal fees. The trading volume a new token is likely to bring in will have a great influence on the computation of the exchange listing fee. Exchange Listing Procedures Evaluation Different exchanges have different rules for new listings. A new project must of course abide by specific rules for that exchange before they are allowed to list there. There are procedures that must generally be followed for the most noteworthy exchanges. You can get a good idea of the hurdles to be overcome before listing can take place. Ongoing relationship with Exchanges Exchanges, usually Huobi or Kucoin, will sometimes make it essential for newly listed tokens to engage in “trading competitions” after listing. Competitions can last between 2 weeks, or a month or more, aiming to increase the trading volume for that token, thereby increasing trading fees collected by the exchange, and giving the project extra publicity too. The whales may have made a nice profit already and be very happy about it; but the project token can still get stuck in a long period of stagnation and a loss of post-ICO hype. Once a coin or token has been successfully registered for trading on a particular exchange, the project must focus on maintaining regulatory compliance and paying things like annual maintenance fees too. Exchanges can investigate and delist coins or tokens to see if they have fallen below a certain standard set by the exchange. The exchange is concerned about such things as: an extended period with an extremely low volume; a team member connection to an exit scam; or other such immoral/illegal behavior. Post ICO Company Evaluation After a presumably successful ICO, the necessary funds have been obtained, and the real business, the real team challenge is now, to bring the project to life as a bona fide disruptive Blockchain endeavor! The core advantage of the ICO method of funding business startups is the lack of regulatory hurdles to navigate with regards to fundraising and fund allocation. The funds that have been raised have, in effect, been freely given to the project leads to do with what they will in a no-strings-attached transaction. Of course, there are still strings attached in that the team are tasked with making that money grow for the investors. But there is no regulatory oversight of the process. The regulatory freedom is a double edge sword. It gives a good team freedom to work however they want; and it also allows for unscrupulous thieves to use the ICO process to defraud investors of their ETH and BTC. Advantages of being Post ICO From Investor Perspective You should have little to fear in terms of fraud from a project in which you have invested, if you have done your due diligence correctly. You can expect the tokens to be distributed, and the exchange listing to take place as expected. And you know your project is totally legitimate. There are different ways to think about your ICO tokens after the crowd sale has concluded. If you are a speculative investor looking for a quick flip, you can gauge the correct moment and sell anytime you like, assuming the ICO has been well-received by the markets. From Team Perspective The post-ICO period is, from the point of view of the team, a period where stress and responsibility for the safety of investor funds is passed, in the form of ICO tokens, from the team to the investors themselves. This responsibility for tokens is replaced with the stress of building the actual company itself, and succeeding in the business as planned. A small portion of the responsibility for the project’s success is also passed on to the exchange that has listed the tokens. This is especially true if market makers have been employed by the team or the exchange to provide liquidity. After the ICO has concluded, all funds are released to the project team immediately, so they can start building their business brand, and tackling each step on the road map right away. The freedom with which startups can operate is one of the main reasons behind the explosion in Blockchain businesses in 2017. With the ICO funds safe, and money being put to work on various areas essential to the growth of the project, and the tokens already distributed to investors, the risk of fraud is greatly diminished. If KYC and Anti-money Laundering procedures have been followed correctly during the ICO phase, the risk of phishing attacks and theft will also be marginal now. At any rate, with tokens safely delivered to all participants, the responsibility has passed from the team to the investor. From Team Perspective The release of all funds and the freedom to allocate them with no supervision, as cited above, is certainly a tremendous advantage empowering the team to fulfil the entire breadth of their vision unimpeded. But it does have its drawbacks. If there is a mistake made in the allocation of funds, or an unforeseen problem arises, there is nowhere to turn to, and no means of generating further money via crowdfunding. The ICO is over; it is finished. The project simply has to work with what it has. Your community can sometimes turn against you when the market is going down. Times like that just add to the already intense pressure of presiding over a startup Blockchain business. Solution: DAICO The DAICO, or Decentralized Autonomous Organization Initial Coin Offering, is a means to integrate a more specific, rigorous and regimented smart contract schedule into the ICO process. Doing so will eliminate fraudulent ICOs, exit scams, pump and dumps, and many of the other disadvantages listed above. The DAICO method, proposed by Ethereum creator, Vitalik Buterin, will merge the core concepts of both an ICO and a DAO to leverage the most relevant features of both, in order to solve the main problems in the ICO method. For example, to eliminate the risk of an exit scam, the release of funds will be spread out over a period of time, with the next allotment only being released when a certain set of parameters are met. Buterin explains that the DAICO method will provide user protection in a manner not present in the current ICO model, ensuring funds are not misspent or used in any way contrary to the intention of investors. In simpler terms the DAICO will operate as follows: The DAICO will start with a smart contract by its executors that can set whether this is to be a capped or uncapped round of fundraising (amongst many other options) as well as including KYC requirements. After these settings have been configured, the DAICO is set into “contribution mode” and presented to the public. This stage will function identically to a normal ICO with ETH exchanged for project tokens. Once the funding period has elapsed, or the hardcap has been met, investors will have the ability to set the “tap” for the collected funds. This will set the amount per second, or amount per minute, that will be available to the executor to develop that specific portion of the project to which those funds have been assigned. If investors believe at any point that the team is misspending funds or otherwise wasting time, etc., the investors have significant options to take. Of course they could choose to release more funds to the team. But, they could also stop the tap altogether, and stop the entire ICO, by voting, and actually release all unused funds back to their own wallets from which the investment had first been made! Learn more on how to market any ICO and STO, get better understanding of security token definition and learn what a scam project is! Follow the link to read the full article: UBAI.co Contact me via Facebook or LinkedIn to know more about our services: LinkedIn Facebook
Cryptokidnapping, or how to lose $3 billion of bitcoin in India
Investigators across Gujarat and in the Indian capital of New Delhi say complaints about crypto frauds began pouring in after the U.S. cease-and-desist letters. Accusations of tax evasion and police corruption, a kidnapper who was kidnapped, a fugitive politician, and billions in bitcoin lost. This is crypto-trading Gujarat-style. The ingredients are part of an investigation in Indian Prime Minister Narendra Modi’s home state into allegations that investors poured cash into a bitcoin-based Ponzi scheme that could exceed the country’s largest banking scandal. The fallout extends as far as Texas and has embroiled a former lawmaker, tarnishing Modi’s ruling party months before an election. It began in February, when property developer Shailesh Bhatt charged into the Home Minister’s office in Modi’s home state of Gujarat, claiming he had been kidnapped by a group of policemen and told to pay 200 bitcoin, worth some $1.8 million at the time, for his release. He said he had nowhere else to go. The state’s elite Criminal Investigation Department was called in and the evidence it has uncovered points to a potential fraud on an epic scale. Eight policemen have been indicted and suspended pending trial. The abduction was allegedly spearheaded by Bhatt’s associate, Kirit Paladiya, and masterminded by Paladiya’s uncle Nalin Kotadiya, a former lawmaker in Modi’s ruling Bharatiya Janata Party, according to Ashish Bhatia, the lead CID investigator. Bhatt has been charged too, as the allegations of kidnapping widened. Paladiya is now in jail, facing charges of abduction and extortion, and Bhatt and Kotadiya are both absconding, according to police. Kotadiya posted a video via Whatsapp in April denying wrongdoing and saying he’d informed authorities about the crypto scam, said Prashant Dayal, a senior Gujarati journalist who broke the story. In the video, reposted on Youtube, Kotadiya says Bhatt is responsible for the scam and threatens to release evidence that could implicate other politicians. Both Bhatt and Paladiya have denied wrongdoing, according to their lawyers. Between late 2016 and early 2017, Bhatt invested in BitConnect, a cryptocurrency firm that was being promoted in Gujarat by a man called Satish Kumbhani, according to Bhatia, the CID investigator, in an interview at his office late June. Kumbhani is one of the founders of BitConnect, which has allegedly scammed individuals across the globe, according to Crypto Watchdogs, a group of six investors who’ve filed a U.S. federal lawsuit against the company. The firm recruited clients worldwide to deposit bitcoin and receive BitConnect coins they could lend at interest rates of more than 40 percent a month. The interest they earned was higher if they recruited others to invest. Attempts to contact the company and Kumbhani for comment were unsuccessful. As the price of bitcoin soared last year from less than $1,000 to more than $19,700, so did BitConnect’s value. Bhatt and other investors in Gujarat poured bitcoin worth $3.2 billion into Bitconnect, according to Bhatia. The vast inflows from Indian investors were partly the result of Modi’s shock move in November 2016 to invalidate banknotes worth 15 trillion rupees in an effort to curb tax evasion, according to a chartered accountant in Gujarat. Modi, who faces federal elections in early 2019, ruled the state as chief minister for more than a decade before becoming prime minister in 2014 with the promise of stamping out corruption. As a result of Modi’s 2016 demonetization, about 45 billion rupees ($650 million) flowed to Gujarat’s port city of Surat, to be hidden away in assets including cryptocurrencies, said the accountant, who asked not to be identified because his clients include some of the city’s biggest diamond and textile traders. Surat, the heart of the scandal, is famed for its entrepreneurial merchants who travel the world to set up a “dhandha,” or family business. Their tight-knit communities dominate Antwerp’s diamond trade and own a quarter of U.S. motels. In the days following Modi’s demonetization -- when Indians were given about 60 days to bank their higher-value banknotes or lose them -- Google marked a surge in queries from the country on how to launder untaxed cash, or black money. Most of the searches came from Gujarat, Google Trends show. One answer was to switch to cryptocurrencies. Crypto chatrooms around the world soon were abuzz about a surge in demand from Indians who were paying a 25 percent premium for bitcoin. “After demonetization, we were watching India,” said Kiran Vaidya, a product manager at Toronto-based U.Cash and a blockchain adviser to Canadian banks. “We’d seen how bitcoin rose after the Greece economic crisis and similarly after things went south in Venezuela. The volumes were so high that it was obviously people who had the capacity to move markets." While the initial rush may have been black money, there were cases of people selling houses and cars in hopes of doubling their investment, said the CID’s Bhatia. Then, on Jan. 4, 2018, the state of Texas filed a cease-and-desist order against BitConnect. North Carolina followed five days later. The news came as the price of bitcoin crashed. Amid the ensuing market turmoil, the Reserve Bank of India announced measures that virtually banned crypto transactions. Cryptocurrency exchanges responded with a lawsuit that is due to resume hearings in the Supreme Court in September. Investigators across Gujarat and in the Indian capital of New Delhi say complaints about crypto frauds began pouring in after the U.S. cease-and-desist letters. Still, those who had been trying to hide untaxed cash were in a quandary. If they went to the authorities, they would have to declare their investments. So Bhatt and nine accomplices -- including Paladiya -- kidnapped two BitConnect representatives in Surat and demanded 2,256 bitcoin as ransom, CID investigators alleged. Paladiya, however, wanted more. He contacted his influential uncle, Kotadiya, and tapped the latter’s network in the local police to double-cross Bhatt and allegedly extort his bitcoin, according to allegations in police documents and interviews with investigators. They were confident of success, gambling that Bhatt wouldn’t go to the authorities and certain that the anonymity of bitcoin would make the heist untraceable, according to the investigators. They were wrong. Bhatt pressed charges. Bhatt himself has gone “underground” -- Indian parlance for hiding to avoid arrest -- because his appeal for bail was rejected, said his lawyer Rupesh Rupareliya. In a July 26 telephone interview, Rupareliya said Bhatt denies any wrongdoing and says that Paladiya handled all the bitcoin transfers as Bhatt wasn’t tech savvy. Paladiya’s lawyer Yogesh Ravani denied any wrongdoing by his client and said Paladiya was a victim of the kidnappers. On July 5, the opposition Congress Party held a press conference demanding the ruling BJPinvestigate the matter in Gujarat. Kotadiya is no longer with the BJP and since the Gujarat government initiated the investigation, it shows the government is dealing with the matter, said GVL Narasimha Rao, a New Delhi-based BJP spokesman. He asked Bloomberg News to speak to the state administration about Kotadiya’s threat to reveal more political involvement. Jitendrabhai Vaghani, BJP president for Gujarat, answered a call but disconnected when told the question was about the cryptocurrency fraud. He didn’t answer subsequent calls. The BJP had its worst showing in more than two decades when state elections were held in Gujarat last December. Shailesh Kumar, Asia director with political risk advisory Eurasia Group, said the alleged scam follows a string of high-profile frauds. “If more names of politicians do come out, there could be a price to pay,” he said. “The government will have to find the absconders and bring them back.” Source: https://www.economictimes.com/markets/stocks/news/cryptokidnapping-or-how-to-lose-3-billion-of-bitcoin-in-india/articleshow/65347828.cms
“CAR WASH” THIS! - How the Blockchain could have prevented the biggest corruption case in Brazil’s history
“CAR WASH” THIS! How the Blockchain could have prevented the biggest corruption case in Brazil’s history Full article: https://flowbtc.net/research/CarWash_This.pdf Blockchain for beginners The Blockchain is the backbone of the Bitcoin protocol. It enables the Bitcoin network to reach consensus on which transactions should be validated or not in a transparent and decentralized fashion. There is no single entity or individual responsible for overseeing or approving transactions. It is a public ledger and the network oversees itself. Anyone can see the transactions happening in the Blockchain in real time through the Internet. There is a growing trend to use the Blockchain for much more than just processing bitcoin peer-to-peer transactions. The latest developments in the digital currency space have focused more on the power of the Blockchain technology for things such as data storage, titles, contracts and settlements than on the trade of bitcoin units. This new trend is called Bitcoin 2.0. Companies from all sectors around the world are currently exploring ways to utilize this innovative technology. The list of companies that have already publicly announced initiatives in this front includes Samsung, IBM, UBS, NASDAQ and the Bank of New York Mellon. The “Lava-Jato” (Car Wash) Operation Brazil’s state-run “big-oil” company, Petrobras, was the center stage for the biggest corporate corruption scandal ever put in place in the country’s history. Although investigations are still being conducted by the Ministério Público and the Polícia Federal, at least US$ 2.1 billion were diverted from the company just in bribe payments and illegal donations to political parties in the past 10 years, according to statements from Petrobras itself. A total of US$ 17 billion has been written off for related asset impairments as of April this year. The scheme involved contractors’ executives, Petrobras’ executives, political parties’ treasurers, black market foreign exchange dealers and ghost money laundering companies. The starting point of the “Lava-Jato” operation used to be the auction processes for projects in 5 different oil refineries. Around ten big construction and engineering companies allegedly formed a “club”, a cartel basically, and would stage bidding disputes but in reality they were colluding to inflate each project’s cost and pre-assigning winners in a rotational arrangement. The over budgeted amount would then be used to pay kickback bribes to executives and political parties and ensure the continuity of the scheme. image It is unquestionable that there was wrongdoing in each and every step of the operation but any attempt to prevent it would have to focus mainly in the two first steps: the auction process and the contracts handling and oversight. And that’s exactly where the Blockchain technology can be so powerful to make these processes transparent, auditable, yet fully secure. Throwing light into darkness According to recent articles by the press, the contractors organized themselves as a club, the “bribe club”. The public tenders budget and the bribes were pre-arranged between the club and Petrobras´ executives. The most obvious first step to make this process more legitimate would then be to open it to shareholders and the public. New Bitcoin 2.0 startups such as Factom have created smart and versatile solutions to all sorts of data applications into the Bitcoin Blockchain. Factom actually works as a data layer on top of the Blockchain. Running Petrobras’ public tenders using a solution such as Factom would allow every step of the process to be “hashed” and transformed into entry blocks building a chain of events. From the tender announcement, prospectus, every contractor’s bids, documentation, contracts, payments, everything would be securely stored and timestamped. The information would be organized into directory blocks which would allow someone to pull only the data that was available to him/her. These directory blocks would then stored into the Bitcoin Blockchain, which allows for real time auditing and instant verification against rules built in the entry blocks. For example, if one of the contractors was missing a certain required document, it would be detected instantly before the process moved forward. Most importantly, this would allow different levels of scrutiny and governance. For instance, the general public could be able to see the winning bids, their amounts, the date and time they were submitted and the name of the winning firms. On a higher scrutiny level, shareholders would be able to see all the competing bids but only after a winning bid was declared. On an even higher level, an internal compliance manager would be able to see all competing bids even before there was a winner and check for any potential conflicts of interest. External auditing firms would have access to contracts, payments and approvals in real time. Additionally, multi-signature arrangements could be designed to avoid giving too much discretion to a single executive in deciding the winning bids. image So why this can’t be done in a regular private network instead of Bitcoin’s public ledger? There are several reasons. The main one is that in this specific case there were empowered internal “bad actors”. At least three Petrobras’ directors were part of the scheme. If you are running a private and centralized network to perform the governance and record-keeping actions mentioned above, there are good chances that these “bad actors” will have power over the network to backdate, modify, forge, delete documents or audit trails in the private database. This cannot be done once the information is in the Blockchain. It creates immutable audit trails. While adopting such transparent and auditable business processes wouldn’t completely prevent the contractors from colluding and gaming the new system, the chances of them being successful in the long run would be significantly slimmer at the same time that the likelihood of an internal corrupt employee being caught would be dramatically higher. Implementing a Blockchain solution in any company should not be considered an easy task and in a state-controlled giant firm certainly wouldn’t be a walk in the park. In addition to the technology challenges, an immense political effort would be necessary. The Blockchain technology is still a novelty in many ways and a lot of its features still have to be developed, tested and re-tested. However, if we put things into perspective, when you have a fraud case of the magnitude of billions of dollars, in which a total of 97 individuals have already been indicted with charges, including politicians and government officials, then such an investment in transparency and governance starts to make a lot of sense. Whether this is all utopia or not we will only know in the future. However, the Brazilian people would certainly love to see ways to keep corruption away from their larger state-controlled company and be able to proudly say again: “O petróleo é nosso!” (“The oil is ours!”). This article was written by Marcelo Miranda founder and CEO of FlowBTC, a new digital currency exchange and blockchain consultancy firm in Brazil. Full article: https://flowbtc.net/research/CarWash_This.pdf
Fight 4 Injustice: when injustice becomes law, resistance becomes duty!
Fight4Injustice Fight4Injustice is a fundraising entity to help SR-related cases in court. Our goal is to protect the warriors of individual freedom and privacy. Donate your BTC to join us. 1JC6KWkfCKwMekkhsbW1cY8NdEShoFHNEv. When injustice becomes law, resistance becomes duty! The Cases Ross Ulbricht The Federal government claims that Ross Ulbricht created and operated the anonymous online marketplace Silk Road, under the pseudonym Dread Pirate Roberts (DPR). Although law enforcement shut down the Silk Road site Oct. 2 after arresting Ross, DPR posted on the Silk Road forum six days later and the Silk Road site was up and running again in less than a month. Today it is bigger than ever. By its own admission, the FBI has no documentation of how they found the Silk Road server, which comprises the bulk of their evidence. Without forensic documentation there is no guarantee that the evidence is valid or even that it wasn’t fabricated. The explanation of how the FBI found the server has been widely criticized by technical and security experts, one calling it “inconsistent with reality”; another “impossible“; and another a lie and gibberish. Ross has been arraigned in New York on a superseding indictment. He is pleading not guilty to all charges: narcotics trafficking; computer hacking; money laundering; engaging in a criminal enterprise; and conspiracy to traffic in fraudulent IDs. Ross’ family and friends believe he is falsely accused and innocent of the charges. The case is scheduled to be tried beginning January 5, 2015 in Judge Katherine Forrest’s courtroom, #15A, Daniel Patrick Moynihan Courthouse, 500 Pearl St., New York, NY. Although initially alleged to have planned six murders, Ross was never indicted in New York for any. New York also failed to include the one charge remaining in a Maryland indictment, which is a year old and possibly in violation of Ross’ right to a speedy trial. Joshua Dratel, Ross’ attorney, believes that the absense of the Maryland charge demonstrates that the allegation has no merit. Otherwise we believe the prosecution would have indicted Ross for this. Basically the prosecution wants its cake and eat it too: smear Ross’ reputation and prejudice a jury without having to prove anything. Despite not charging Ross in two different indictments, the prosecution used the murder-for-hire allegations to argue against bail and claim that Ross, who has no priors or record of violence, is dangerous. In addition, no victim is named in the prosecution’s complaint or the New York indictment, and the FBI affidavit states that there is no record of any actual homicide. (Note: The murder-for-hire allegation is now included as surplusage, which is an “uncharged crime” mentioned in the narcotics trafficking count of the New York Indictment. It is NOT a formal charge and requires NO PROOF. The defense has requested that the court have it removed, as it is prejudicial and irrelevant to the charges, but the judge denied this request). This case opens new legal territory. It will set precedent for the 21st century and pave the way for new laws and interpretations that could impact the future and freedom of the Internet. Bad law could be ushered in that we will be forced to live with. As attorney Scott Greenfield said in regard to this case: This is the birth of law as applied to our digital future. Watch it as a spectator at your peril. If Ulbricht is convicted, it opens the door for the censure and erosion of a free Internet. Under present law, website hosts are not held responsible in civil cases for illegal actions on their sites. This case could set precedent and open the door to criminal liability for web hosts. A US citizen’s constitutional rights are being violated with vague allegations that do not cite specific crimes, a violation of the Fifth and Sixth Amendments to the US Constitution. In addition, his Fourth Amendment rights have been violated with illegal warrants and searches and seizures lacking any warrant. If the government can misapply the law against Ulbricht, it can do it to any of us. In its documents, the government equates the desire for privacy (use of Tor for example) with criminal intent. This case represents the first challenge to the government’s attempt to expand the money laundering statute to include digital currency. Our Goals: To protect individual freedom and privacy; To provide Ross with what every American citizen is promised: a fair trial. To have Ross acquitted of all charges. We are working hard with the best legal team to defend Ross, but are up against the full force of the federal government. We are not the family of a wealthy kingpin. We own no bitcoin. We are regular people taking on a giant fight against a Goliath. It will take much more money than we have. We can’t fight this alone. Any gift, of any amount will help. Please join us! Donate your BTC to join us: 1JC6KWkfCKwMekkhsbW1cY8NdEShoFHNEv Roger Pion You might have heard about Roger Pion recently, even if you don't remember his name. He's a genuine American hero who, and I can't emphasize this enough, deserves your support -- but I'll get to that if you keep reading. Roger Pion is the Vermont resident who, in righteous retaliation for his recent marijuana arrest, used his large farm tractor to crush seven police cars. Let's be blunt. An arrest for a victimless crime is nothing more than a kidnapping carried out under color of law. Roger Pion was the victim in his marijuana arrest. The people with badges are the criminals, in terms of violating natural, inherent, human rights -- most notably, to do with one's own body whatever one damn well pleases that harms no other. To condemn Roger Pion is to stand against the authentic law and order of rational ethics in servile loyalty to unaccountable, lawless monopoly government controlled by the whims of corrupt politicians.This man's magnificent act of defiance that injured no one has amused and inspired countless people across America by demonstrating that men of character, backbone and courage still exist. Now is the time to stand with Roger Pion. Donate your BTC to join us: 1JC6KWkfCKwMekkhsbW1cY8NdEShoFHNEv Cornelis Jan Slomp Alias SuperTrips, a 22-year-old Dutch man dealt drugs including cocaine, ecstasy and LSD for millions of dollars worth of the virtual currency bitcoin through a black-market website, a U.S. prosecutor said. Cornelis Jan Slomp of Woerden, the Netherlands, facing a single drug trafficking conspiracy count, agreed to plead guilty, according to a statement issued today by U.S. Attorney Zachary T. Fardon in Chicago and Slomp’s lawyer. He was arrested in Miami last year when a criminal complaint was filed against him. Prosecutors are seeking the forfeiture of more than $3 million in alleged proceeds of his crimes. Slomp sold the drugs through the now-shuttered Silk Road website, described by the Justice Department as a “sprawling black-market bazaar” for drug-dealing and money laundering. Ross William Ulbricht, who allegedly ran the site under the name “Dread Pirate Roberts,” pleaded not guilty in February to operating a narcotics-trafficking scheme, conspiring to launder money and other crimes. “In the global black market for all things illegal, Slomp allegedly was a prolific vendor on Silk Road,” Gary Hartwig, the Homeland Security special agent in charge of investigations in Chicago, said in a statement issued jointly with Fardon. Slomp was captured at the Miami International Airport on route to a meeting with co-conspirators where he planned to “spin off his entire U.S. Silk Road operations” to one of them, prosecutors said. He is in custody facing a mandatory minimum sentence of five years’ imprisonment and a maximum term of as long as 40 years. His attorney, Paul Petruzzi of Miami, confirmed his client’s intent to plead guilty today in a phone interview. No court date has been set for the plea, he said. “It was a decision that he made early on, something that we’ve all been working on as a team since his arrest,” the attorney said. A plea agreement with prosecutors will be filed, he said. Slomp is alleged to have had 11 European co-conspirators who aided in the manufacturing, packing and shipping of illegal drugs including ecstasy tablets bearing a question mark, which prosecutors said was Slomp’s identifying logo. Slomp received about 385,000 bitcoins from more than 10,000 transactions, according to the U.S. His Silk Road operations ran from March 2012 to August 2013 and were monitored by undercover federal agents, the government said. He was identified by U.S. officials as the person who mailed drugs from the Netherlands that were seized in April 2012 in an otherwise empty digital video disc case at Chicago’s O’Hare International Airport. Authorities said they subsequently collected more than 100 similar shipments. Petruzzi called Silk Road and any sites that operate as it did “the future of drug trafficking,” moving quantities of quantities of narcotics “that would make Pablo Escobar blush.” The case is U.S. v. Slomp, 13-cr-00689, U.S. District Court, Northern District of Illinois (Chicago).
Jack Abramoff, the lobbyist behind one of the biggest Washington lobbying scandals as portrayed in the feature film Casino Jack, has been charged in connection with AML bitcoin cryptocurrency. He ... The U.S. government has sued two individuals in connection with a scheme to provide "shadow banking" services to unregulated crypto exchanges. Abramoff Charged With Conspiracy In Alleged Bitcoin Scheme. By Rachel O'Brien. Law360 (June 25, 2020, 4:37 PM EDT) -- Political lobbyist Jack Abramoff was charged Thursday in California federal ... C harles Shrem, who ran a New York-based Bitcoin exchange, was arrested Monday and charged with engaging in a money laundering scheme with a user of Silk Road, the notorious deep web black market ... Bitcoin Daily: Five Charged In Alleged Crypto Ponzi Scheme; Expobank Makes Russia’s First Digital Currency Loan By PYMNTS 60 60 PYMNTS.com PYMNTS Posted on August 19, 2020 August 19, 2020 10:45 pm
15 People Plead Guilty in Bitcoin-Powered Fake Auctions Case
CINCINNATI (WKRC) - Police say they've caught up with another person charged in connection with a multi-million dollar money-laundering scheme that targeted a local bank and casinos. Liberty Reserve & 7 Others Charged for Allegedly Running $6 Billion Money Laundering Scheme ... Money Laundering 101 💰 How Criminals Use Bitcoin To Hide Illegal Money 🔫💎🗡 - Duration ... Bitcoin Exchange CEO Arrested For Money Laundering The founder of a prominent Bitcoin exchange company has been arrested and charged with running an illegal scheme to sell the digital currency to ... Unpacking an Alleged $75 million Ponzi Scheme - Duration: 49 ... 2 men charged in $10M fraud ring bust - Duration: 2:59. CityNews Toronto 377,606 views. 2:59. Executing A Police Raid On A Fraud ... Two Massachusetts men were arrested on Thursday and charged with carrying out a nationwide scheme to steal people’s social media accounts and their cryptocurrency. According to the U. S ...