$6.8 billion were raised by blockchain industry through ICOs in 2018. The agencies are well aware of the illicit activities in the crypto space and had been active for some time now.

In November of 2018, the Federal Bureau of Investigation (FBI) arrested CEO of AriseBank. Jared Rice Sr. was accused to have tricked investors and raised $600 million in only a matter of weeks through an “ICO” and it was believed that he spent the investors’ money on luxuries such as hotels, food, clothing, etc. Not only that, another major ICO scam was announced last year in April in which the joint-owners of Centra Tech Inc. were charged for running a fraud ICO scheme that was also endorsed by the boxing superstar, Floyd “Money” Mayweather. The owners, Sohrab Sharma and Robert Farkas were accused of raising $32 million via a false ICO and were charged for their misdeeds.

In an interview with The Paypers, Section Chief of the FBI’s Financial Crimes Section within the Criminal Investigative Division, Steven M. D’Antuono highlighted the issues with scam initial coin offerings (ICOs) and why investors must avoid this disease in the crypto space. Three major factors to assess any blockchain startup that raises money by distributing their crypto assets to investors have been pointed out by the officials. First and foremost is the founder’s experience in the field, the attention ICO is getting from the market and the false claim of return that is guaranteed to investors by the ICO. Steven said;

“The fraud scheme may vary, but some of the consistent threads running throughout most ICO scams are misrepresentations regarding the principals’ experience, misrepresentations regarding industry’s interest in the ICO, and misrepresentations regarding the coin’s probable rate of return”.

The fact that cryptocurrencies and ICOs have made themselves prominent in the financial industry is nothing new for anybody, as we look at the success the two have made in the past two years. With gathering attention of investors from all the world and bringing further advancements in the field, the crypto space has continuously evolved.

It was reported that numerous ICOs had entered the crypto market and raised $6.8 billion in 2018. When asked about the main characteristic of a scam ICO, Steven said:

Like any investment product, rates of return can never be guaranteed and if it sounds too good to be true, it probably is.

ICOs sounds useful for startups to raise money but has certain risks attached to it which are exploited by the cybercriminals. Sometimes ICOs do exist on whitepaper but not in real life and investors are easily deceived. Such ICOs which are designed by cybercriminals to defraud the public and investors are scam ICOs and their purpose is not to make profits for businesses but only for themselves.

Investors and businesses all over the world have suffered through the hands of scam ICOs and have been deceived by cybercriminals one way or another. These cybercriminals have made themselves experts of manipulating the financial market and in doing so, they have almost always been successful, let it be in the US or anywhere else in the world. To counter the never-ending attacks, FBI officials claimed to be taking progressive steps towards eradicating such attacks and especially scam ICOs. Steven further stated:

“While the FBI and other law enforcement and regulatory agencies are actively trying to eliminate the scams and bring the scammers to justice, there seems to be a lucrative market for the scammers, meaning they continue to appear. Perhaps our best tool in mitigating fraudulent offerings is getting information out to the public that they need to be careful prior to investing in these projects”.

The US official security service urges investors and the general public to alert themselves in this space to avoid being scammed and cheated. According to the FBI, the best possible way right now to shut down scam ICOs is to stand against them and not invest in them. The major points that the FBI officials have highlighted must be examined before investing in any ICO and if there seems to be a claim of an over the moon return on investment from the ICO, then don’t fall for that trap because it’s highly likely that it’s a scam.

In addition, investors are urged to look out for ICOs that are exclusive to the internet and have no physical presence. Crypto investors must ensure that the ICOs are registered with a jurisdiction or not before investing in them and the Financial Industry Regulatory Authority’s BrokerCheck system is the tool designed to verify the registration of ICOs with legal entities.

Did the FBI take too long to take actions on scam ICOs? Why weren’t the scams taken seriously earlier? It’s not entirely true that the FBI or other security agencies didn’t take any steps against scam ICOs before billions of dollars were raised but now they finally warned the crypto investors. They could have been informed earlier.