One In Five ICOs Are Ponzi Schemes, Claim Journalists


An investigation into initial coin offerings has found that nearly one in five have all the hallmarks of fraud.

Reporters from the prestigious Wall Street Journal scrutinised 1,450 ICOs and red-flagged 271.

The newspaper alleges the schemes provided plagiarised documents, fake team listings or made claims which displayed the characteristics of Ponzi schemes.

A Ponzi fraud – named after the originator – is when a fraudster collects money from his victims for an investment, but instead of placing the cash with the investment, pays off other victims from the proceeds.

The idea is to keep paying old investors from newly raised cash while raking off a profit.

False documentation

The WSJ inquiry also revealed that investor white papers promoting the project’s technology and applications were copied word-for-word from other projects which were sometimes Ponzi frauds.

In some cases, team names and mission statements were copied.

The newspaper also uncovered a lucrative industry for freelance writers from online job sites who produce ICO documents and white papers for the fraudsters from $100 a time.

Astonishingly, investors failed to carry out even basic due diligence that could have revealed the fraud and invested around $1 billion in the 271 suspicious ICOs.

Disgruntled investors have managed to reclaim $270 million by chasing the offenders in the courts.

Shocking claims

The tricksters are taking advantage of a huge market worldwide for ICOs that has raised almost $10 billion for cryptocurrencies in just two years.

ICOs make some shocking claims – like the Plexcorps saga. The ICO raised $15 million by promising investors that their stake would be returned with a 1,300% profit within a month. Surprisingly, the company was unable to deliver the promise, but claims the ICO was not a scam.

“We are being depicted as robbers, scammers and fraudsters everywhere in the media. They are smearing our name with some allegations that can sometimes be false or misleading,2 said a spokesman. “All PlexCoin purchased were distributed and we are now listed on many cryptocurrency exchanges. We claim that PlexCoin is not a fraud since no one had their money stolen from us.”

Bradley Bennett, formerly of the Financial Industry Regulatory Authority (FINRA), has spoken out about fraudulent ICOs.

“Copied language, the absence of named employees and promised high returns are warning signs for investors,” he said.