Initial coin offerings have become one of the most popular and easy ways to raise money online through cryptocurrencies. But ICOs have also become a popular way for fraudsters to scam people as the SEC recently showed by filing suit against the ICO by PlexCorps.
ICO: A Threat to Venture Capital Firms?
Early stage startup funding has been steadily declining over the last couple of months. The main reason behind this is the rapid rise of initial coin offerings. Nowadays, many startups prefer to host their own token sales instead of seeking funding from an incubator, accelerator, or venture funding firm. One of the major advantages that a token sale has compared to traditional VC funding is that startups are not forced to give up equity in exchange for funding.
According to the cryptocurrency statistics website Coinschedule, a grand total of 234 projects have raised over $3.6 billion through initial coin offerings in 2017. Many experts believe that the ICO market is going to further grow in the upcoming years, due to the fact that more and more startups realize that it’s a better way to raise money than traditional VC funding.
The New Opportunity for Scammers
Most of the projects and startups that conduct an ICO have a solid product, team, and reputation. But there is still a tiny minority of ICO projects that may actually be fraudulent. In a recent article by the Internation Business Times, it was reported that the US cyber unit has filed its first charges against a project to stop its token sale. The cyber unit was recently founded by the United States Securities and Exchange Commission (SEC) in order to closely monitor the ICO and cryptocurrency market for potential scams and frauds.
The cyber unit sprang into action against PlexCorps and its founder, Dominic Lacroix. In the ICO offered by PlexCorps, investors were told that they could see a return of over 1000% within just 30 days. If that wasn’t enough of a red flag, PlexCorps would not list its team of “world class experts” due to the fact that PlexCorps didn’t want other companies to poach them.
Lacroix even kept his own identity hidden during the ICO, which was done for a very good reason. It turns out that he’s a known recidivist securities law violator in Canada, and the SEC maintains that the vaunted team is just Lacroix and a small group of employees in Quebec. Lacroix and his partner, Sabrina Paradis-Royer, did raise over $15 million, but it appears that the money went into their pockets and was spent on personal expenses and home decor projects.
Robert Cohen, Chief of the SEC’s Cyber Unit, stated the following about the PlexCorps situation:
This first Cyber Unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing.
He also added:
We acted quickly to protect retail investors from this initial coin offering’s false promises.
The cyber unit has successfully prevented a fraudulent ICO from taking place, but many government regulators are still warning investors from participating in such investment schemes without verifying if the projects comply with the proper regulations and having the ICO details fully vetted.
What are your thoughts on fraudulent ICOs? Do you think that fewer scammers will try to conduct fraudulent ICOs in the future? Let us know in the comments below!
Images courtesy of Pixabay.
The post SEC Cyber Team Shuts Down Fraudulent ICO appeared first on Bitcoinist.com.
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