The Need for Smart Investing

     There has been a surge of new ICOs in the last few years. An initial coin offering (ICO) is the process of generating capital through crowdfunding to initiate and maintain the development of the crypto asset associated with an ICO. Both the investors and the developers of the project are benefited by this process as investors reap huge profits as the project grows, while developers are granted funds to aid in the development of their decentralized platforms. ICOs are a billion dollar industry, yet are unregulated. This has led to several scams and huge losses. There are several cases of ICO exit scams which have left investors in the cold and penniless. The market is plagued with numerous fraudulent platforms and it is becoming more common by the day.

     There is no way to recover lost money once an untrusted service provider absconds. Not all ICOs are fraudulent, yet the sheer volume of them in the market makes it difficult for investors to choose an ICO to invest in. One way investors can prevent themselves from being a victim of fraud is by conducting detailed research with respect to any ICO they wish to invest in. Some investors may have the necessary resources to conduct Due Diligence for the ICOs they may wish to invest in, while other investors simply may not have the resources to do the same. How does an investor make a smart decision in this case? 

     PlexCorps is a cryptocurrency company banned by the Securities and Exchange Commission (SEC) for fraudulent practices. They were accused of raising around 15 million USD and swindling their investors and their assets have been frozen. If an ICO promises huge returns on the crypto asset they are selling, they are likely to be a fraud as there is no guarantee of profit in the cryptocurrency world.  PlexCorps promised massive returns on their crypto asset and advertised a non-existent team of experts in the quest of quickly putting across their stance in the eyes of their investors and gaining their trust. The financial crimes of its founder, Dominic Lacroix were conveniently hidden and it was only a matter of time before a complaint was lodged against them.

Refer to –

https://www.theverge.com/2017/12/5/16739348/sec-plexcorps-plexcoin-ico-scam-asset-freeze-charges

     According to a report published by CNN, of the 1,450 tokens they analysed, 271 have turned out to be a scam. More than 1 billion USD has been lost to scam ICOs and less than 25% of these funds have been recovered. Investors need to be careful as they are the ones at loss in the end. Some ICO teams have published fake whitepapers which have been copied from other ICOs or are blatantly wrong and improbable. Other ICOs have published fake team lists and have even gone to the extent of copying the names of members from other trusted ICOs! All in all, it is absolutely necessary to gauge all aspects of an ICO before investing in it as the loopholes in a project may be immense, and the possibility of fraud large. Here are a few things smart investors should look for when investing in an ICO.

Refer to –

https://www.ccn.com/ico-scams-have-raised-more-than-1-billion-report-claims/

What do Smart Investors look for while investing in an ICO?

Legal Compliance of Affiliated Tokens

     The Securities Act of 1933, also known as the “truth in securities” act, has two basic objectives:   

     · “require that investors receive financial and other significant information concerning securities being offered for public sale; and
    · prohibit deceit, misrepresentations, and other fraud in the sale of securities. “  

Refer to –

https://www.sec.gov/answers/about-lawsshtml.html#secact1933

     It is safer to invest in tokens affiliated with ICOs under regulatory frameworks such as Regulation A+, Regulation D and Regulation S. This significantly reduces legal risk and is much cheaper for companies to conduct an ICO. Donald Trump, the President of the United States has assigned a task force to investigate pervasive fraud existing within the cryptocurrency universe. The President signed an official executive order on the 12^th of July, 2018 to establish a new task force to prevent fraudulent activity and "to investigate and prosecute crimes of fraud committed against the U.S. Government or the American people, recover the proceeds of such crimes, and ensure just and effective punishment of those who perpetrate crimes of fraud."

Please refer to –

https://www.whitehouse.gov/presidential-actions/executive-order-regarding-establishment-task-force-market-integrity-consumer-fraud/

The task force replaces the originally existing Financial Fraud Enforcement Task Force which was established on the 17^th of November, 2009. The team will be led by the Deputy Attorney General Rod Rosenstein.

     The Deputy Attorney General will carry on with proceedings as deemed fit by him and will invite representatives from other federal departments of the US government. Other team members include FBI Director Christopher Wray, the Federal Trade Commission, representatives from the Securities and Exchange Commission and the Consumer Financial Protection Bureau (if called upon). Investigations and enforcement actions are set to be ramped up. Tokens issues by companies in a compliant manner will not have to suffer through the nuance of constant private litigation and other significant business interruptions. In today’s market this protection is a necessity. If the initial coin offering is from the United States, make sure that it is under Regulation D or Regulation A+ for United States based investors and under Regulation S for foreign investors.

Listed as a Security

     Security tokens are liquid contracts and equate to denominating a fractional ownership over an asset in the form of a token. Classifying a token as a security offers legal clarity and protection for both the ICO investors and the affiliated company. There are several rules and regulations but it is safer in the long run. An organization that acknowledges their token as a security can acknowledge their token as an investment and give investors certain benefits like profit shares, benefits, voting rights and dividends. Bounty rewards may be misleading so keep that in mind as well.   

There is No Such Thing as Guaranteed Profit

     If an ICO guarantees profits, it is most likely a scam. If there was a guaranteed method of generating profits on blockchain systems, everyone would be a millionaire. There are several platforms which promise automated trading bots that eventually rake in massive amounts of money. Other platforms promise a return to investors for staking in their coin. The Proof of Stake consensus is growing in popularity and the latter mentioned method of profit raking is more prevalent. Of the many examples of such fraudulent ICOs, BitConnect strikes the mind and is a well-known instance of an ICO guaranteeing profits. There scheme turned out to be a Ponzi scheme. Remember, there are no certainties and no proven or reliable methods to sustain profits in blockchain environments.

Celebrity Endorsements

     There are several ICOs being endorsed by celebrities. These celebrities are paid a fee for their endorsement. Hardly any details are provided on the project and investors are drawn into investing in the ICO because of the celebrity associated with the project. Centra is an ICO which was endorsed by Floyd Mayweather and the two co-founders, Sohrab "Sam" Sharma and Robert Farkas were arrested for fraud. The ICO raised 32 million USD and was banned by the SEC. They claimed to offer a debit card authorized by MasterCard and VISA that would allow its users to convert cryptocurrency to USD and spend in stores. This was not the case as they had no connection with both companies. Their profiles were fake as well. 

Please refer to-

https://www.cnbc.com/2018/04/03/floyd-mayweather-backed-cryptocurrency-ico-fraud-sec-says.html

Team Credentials

     An authentic initial coin offering will provide investors with a detailed list of their team. All ICOs generally display the names of their founders, advisors, developers and other members integral to its creation and maintenance. There are several ICOs which create a fake list of team members which seem authentic. Scam ICOs understand that investors will look at the team page of an ICO and make a decision based on the credibility of their team members. These scam ICOs go to great lengths to create a list of team members which seem credible. Conduct detailed research on the credentials of the team before making a decision.

Project Roadmap

     A roadmap generally encompasses the work of the development team, what they have achieved so far, what they plan to do in the future and their eventual goal, along with certain updates. If a project does not have a roadmap, it is likely to be a fraud. A roadmap shows the direction in which an ICO plans to head in and sans one, it can be expected that the team plans to abscond after obtaining profits. As mentioned before, an ICO which seems too good to be true probably falls into this this category. ICOs without a whitepaper, roadmap or an empty repository are likely to be a fraud. There are some ICOs which claim to be working on a roadmap but never come up with one. Never trust a platform which reeks of fraud, as no one can save you if you transact virtually on the internet. An unrealistic roadmap which guarantees profits may be a fake as well. Assess the content of the roadmap carefully before making any decision.

ICO rating reports

     ICO ratings enable an investor to determine whether an ICO is fraudulent or not. Of the many ICO rating organizations, Crypto Asset Rating Inc. is a viable option to choose from. Crypto Asset Rating Inc. is an independent United States based ICO rating agency, offering two security tokens for US-based and non-US based investors under Regulation D and Regulation S respectively. They have developed an algorithm to determine the viability and authenticity of the ICOs affiliated with their project.

Refer to for ANSA token details-

www.CryptoAssetRating.io

Refer to for AND token details-

www.CryptoAssetRating.us

     Their rating system segregates the set of fraudulent ICOs on the market, from the authentic and viable ones. The blockchain-based rating engine is based on 150 different rating parameters and is divided into over 15 categories, depending on the business, legal, financial and technical risks involved in investing in a particular cryptocurrency asset. Their team is experienced and is not limited to just providing ratings for various ICOs and also suggests certain changes crypto assets can bring to their structure to get a better rating. This may lead to a change in rating and is visible to investors looking to invest in a particular coin. All registered subscribers have the option to access detailed reports which are published by the organization. 

Crypto Business World

CBW - External Analyst

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