According to research conducted by the Wall Street Journal, around 20 percent of initial coin offerings (ICOs) are merely pure scams, with many others more likely to fail.
The WSJ team came to its conclusion after analyzing 1,450 digital coin offerings, of which 271 were red-flagged on the basis of various parameters, such as “plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.”
So far, more than $1 billion has been poured into ICOs where the Journal identified red flags, despite the fact that it’s nearly impossible to know which ones will survive.
To do their work, the group of researchers reviewed the startups’ statements and online transaction records. The research shows that 25 of ICOs can be labeled scams right now as they claim guaranteed returns on investments, a common fraud tactic and something the SEC prohibits. The risk-free investments, however, lure many ICO investors who are drawn to the idea that their token will post bitcoin-like gains.
Additionally, at least 124 of these projects had faked or concealed team members. More specifically, the ICO operators didn’t disclose their listed team members who either didn’t appear to exist or were impersonating identities of other people who told the WSJ that their photos were used without their knowledge.
Other red flags included characteristics that are common to fraudulent offerings, such a white paper with a complex yet vague explanation of the investment opportunity, promises of financial rewards without any risk, unresponsive websites with only a countdown clock that shows time is running out on the deal of a lifetime.
Of the projects listed on the report, 111 offerings were sharing a duplicate language with entire sections word-for-word were copied from other white papers. These included copied descriptions of the working product and roadmap, security issues and some technical features.
These findings are nothing new in the world of digital token sales. The U.S. Securities and Exchange Commission (SEC), along with other regulators across the world, have been cracking down on ICO fraud.
The US top regulator repeatedly warned investors against throwing money into the virtual crowdsale because the company intended to launch a cryptocurrency-based investment scheme without even attempting to follow US securities laws.