In a market that is still largely a wild frontier, it’s almost an expectation to find a number of scams here and there.
A study by the Wall Street Journal of 1,450 ICOs found that these scams are common. The newspaper found that 271 of the offerings had red flags that would indicate untrustworthiness.
WSJ’s methodology includes looking specifically for copy-pasted whitepapers, outlandish promises such as guarantees of returns (like the PlexCoin scam did), or anything that’s “off” about executive staff (such as no listing at all or a fake listing of people that have nothing to do with the company).
In one such example, WSJ introduces us to a “Jeremy Boker:”
“Jeremy Boker is listed as a co-founder of Denaro, an online-payment project. In investor documents for a public offering in March, which claimed to have raised $8.3 million, Mr. Boker boasted of his cryptocurrency startup’s ‘powerhouse’ team. In his biography, he noted a ‘respectable history of happy clients’ in consulting before he launched Denaro.”
The problem is that Boker doesn’t appear to exist at all. The image used to represent him was a stock photo. All of the team appears to be fictitious creations that are a figment of the scammer’s imagination.
What’s more, the journal found that more than $1 billion in funding was raised in these 271 fake ICOs out of the $5 billion total in its analysis.
It’s important to note, however, that the amount of fraudulent ICOs in 2018 has decreased in comparison to last year’s numbers.
Still, the problem persists, and organizations around the world from both government and private sectors are trying to address the issue. For example, in South Korea, Korea M&A is developing a system by which investors could have their funds put into escrow so that anyone who dumps money into an ICO would do so under a layer of protection.
“This structure allows investors to receive a return on the amount of ETH invested even if the ICO fails or the price drops after listing,” the company said.
This may not eliminate the probability of scams, but escrow holdings could help minimize their effect over the long run.