Hundreds of technology firms raising money in the fevered market for
cryptocurrencies are using deceptive or even fraudulent tactics to lure
In a review of documents produced for 1,450 digital coin offerings, The
Wall Street Journal has found 271 with red flags that include plagiarized
investor documents, promises of guaranteed returns and missing or fake
“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.
In fact, Mr. Boker’s bio image was a stock photo, there is no evidence
he exists and the rest of his team appears to be fictional, except for two
freelancers who said they were paid by people unknown to them to market the
project, the Journal found.
The principals behind Denaro couldn’t be identified and attempts to
reach the company went unanswered. The real person whose image was repurposed
as Mr. Boker’s turns out to be Jenish Mirani, a banker in Poland. Mr. Mirani,
who had posted the photo on his personal website, said “it was really shocking”
to find out about its afterlife.
Investors have poured more than $1 billion into the 271 coin offerings
where the Journal identified red flags, according to a review of company
statements and online transaction records—nearly one in five of those reviewed.
Some of the firms are still raising funds, while others have shut down.
Investors have so far claimed losses of up to $273 million in these projects,
according to lawsuits and regulatory actions.
Companies use coin offerings to raise funds by selling their own digital
currency. Led by the bitcoin fever, the 1,450 projects analyzed by the
Journal—a number believed to encompass most of those aimed at an
English-speaking audience since 2014—say they have raised at least $5 billion.
Since 2017, cryptocoin offerings have generated more than $9 billion in
proceeds globally, according to research and data firm Satis Group.
Recently, the Securities and Exchange Commission issued warnings
to investorsthat many deals in the booming private market for
cryptocurrencies could be violating securities laws, and on Wednesday launched
a website touting a fake coin offering as an example of what to avoid.
Since December the agency has filed civil charges against companies and
individuals in four separate cases involving initial coin offerings, known as
ICOs. At least a dozen companies put their offerings on hold after the agency
raised questions, an SEC official said in February.
At the heart of most coin offerings is a company’s “white paper,” a
document that typically details mission statements, team biographies and the
technical specifics of a project.
Of the 1,450 white papers downloaded from three popular websites that
track coin offerings, the Journal found 111 that repeated entire sections
word-for-word from other white papers. The copied language included
descriptions of marketing plans, security issues and even distinct technical
features such as how other programmers can interact with their database.
At least 121 of the projects didn’t disclose the name of a single
employee and several of them listed team members who either didn’t appear to
exist, as with Denaro, or were real people who said their identities were being
used without their knowledge.
The Journal also identified more than two dozen companies that promised
investors financial rewards without any risk—something the SEC prohibits. These
white papers went as far as pledging weekly payouts or doubled returns. The SEC
has recently taken action against ICOs making such guarantees, including
PlexCorps, which raised as much as $15 million by promising a 1,354% profit in
less than a month. In December, the agency obtained a court order freezing the
PlexCorps didn’t respond to emails seeking comment. On April 23,
somebody posted a statement on the company’s Facebook page saying that “the
PlexCoin project is not dead, it is simply on hold because some court orders
prevent us from continuing the development of the project for the moment.”
Interest in bitcoin and other cryptocurrencies exploded as a frenzied
rally pushed coin prices to all-time highs late last year. Now reality has set
in for many in the industry as regulators step up their scrutiny and issue
warnings to investors about fraud in the lightly policed market.
Unlike public offerings, ICOs generally happen outside the strict
framework of regulation and don’t require filing much official paperwork, if
any. That leaves it to investors to do a lot of the detective work about what’s
real and what’s not.
Copied language, the absence of named employees and promised high
returns are “warning signs for investors,” said Bradley Bennett, a former
enforcement chief at the Financial Industry Regulatory Authority.
“There are going to be some legitimate players that emerge from this but
it’s going to be a handful—a lot of it looks like penny-stock fraud with lower
barriers to entry,” Mr. Bennett, now a partner at law firm Baker Botts LLP,
said of the broader coin market.
To feed the growing market, ranks of freelancers have sprouted up to
write white papers for as little as $100.
At least five projects filled out their white papers or websites with
executive images pulled directly from online stock photography or other sites,
the Journal found.
Among the most extreme was investment startup Premium Trade. The images
for its five-member executive team were simultaneously being used on nearly 500
unrelated websites: Premium’s co-founder Andrew Ravitsky was also “Dr. John
Watsan,” in an online cardiology course.
Premium Trade didn’t respond to several requests for comment and Messrs.
Ravitsky and Watsan weren’t reachable, if in fact they exist.
LoopX, which began soliciting money last year, vowed to build “the most
advanced” trading platform in the cryptocurrency market. The company didn’t
name any team members or detail how the platform would be built. Its white
paper featured several key entries identical to another coin project’s.
“Along this journey, we found great partners and mentors who were strongly
committed and excited to work with the ever-progressing vision of LoopX,” the
company wrote in one of several passages identical to those in an earlier
online payment startup called UTrust.
After claiming to raise $4.5 million, LoopX disappeared from the
internet in early February. Its website is now down and its Twitter account features a single
message linking to a news article alleging the founder or founders ran off with
the money. LoopX couldn’t be reached for comment.
When contacted by the Journal, Swiss-based UTrust’s CEO, Nuno Correia,
said he was aware his white paper had been plagiarized but didn’t think there
was anything to be done about it.
“We get a lot copies of our white paper,” Mr. Correia said. “My picture,
my description, my team, even our website was copied.”
Seven other coin offerings also featured passages that appeared earlier
in UTrust’s white paper.
Along with Mr. Correia’s biography, the Journal found lawyers in
California, an escrow agent based in Ukraine and the co-owner of a media
company whose identities had been hijacked in order to lend credibility to a
range of cryptocurrency projects involving education, e-commerce and crypto
“I’m a little creeped out by the whole thing,” said Amanda Gavin,
co-owner of a media production company in San Francisco, whose image and name
were taken from her LinkedIn page and used for a coin offering she had never
heard of called Pixiu.
Pixiu didn’t respond to several requests for comment via email and
At least four coin promoters have been sued by investors seeking to
start class-action cases. During its 2017 offering, Paragon Coin raised more
than $70 million, according to a lawsuit filed in a California federal court
alleging the business was an “overly ambitious, vague, and impractical” venture
to raise funds to purchase real estate.
Paragon, founded by a Russian internet entrepreneur named Egor Lavrov
and his wife, Jessica VerSteeg, promises to “connect the cannabis industry through
the blockchain,” according to the company’s white paper. This July, the company
plans to open a co-working space in Los Angeles paid for “exclusively in
cryptocurrency,” according to the company’s website.
“Paragon is dedicated to staying compliant with all applicable laws, and
endeavored to do so throughout the entire ICO process,” said Ms. VerSteeg, who
was the 2014 Miss Iowa United States and is currently Paragon’s chief
executive, in a statement provided by the company. “Paragon holds itself to a
high standard of compliance with our token holders and will continue to do so
as it moves forward.” Mr. Lavrov couldn’t be reached.
After the coin offering for Denaro closed in March, the entity’s website
went dark and investors are now alleging on social media that the founders ran
off with millions.
Daniel Armstrong, who said he worked for Denaro as a freelancer through
February, proofreading company literature, now believes the startup was run by
Lithuanians, based on evidence he saw from payment details, documents he edited
and a message posted to Slack by one of the founders written in another
“I did some marketing text for them,” Mr. Armstrong said. “When they
sent it to me it was terrible and written by a non-native writer.”
Denaro didn’t die entirely. An offering for a new payment system
recently emerged called Pluto Coin with a similar website and an identical
white paper. Half of the Denaro team members had also been recycled for Pluto
Coin, including an image of Mr. Boker, which appears in coding for the website
but isn’t visible to casual viewers. He has been renamed “Ivan Denver.”
So far, Pluto Coin claims on its website to have collected at least $10
million from investors. It couldn’t be reached for comment.
Click here for the original article from The Wall Street Journal.