The Wall Street Journal published new findings from an in-depth analysis of nearly 1,500 initial coin offerings. The report concludes that 18.6 percent of all ICOs that were part of the analysis, raised various “red flags.”
WSJ’s investigation found that 271 of the 1,450 ICOs analyzed were found to be using “deceptive or even fraudulent tactics,” ranging from falsifying information about a company’s team or location, to plagiarizing white papers – a practice commonly found throughout the cryptocurrency space. Even Tron – a coin in the top ten cryptocurrencies by market cap – was the subject of a scandal over allegations of plagiarizing Ethereum’s whitepaper.
The report notes that many of the 271 ICOs suspected of potentially fraudulent activities have already been shut down by regulators or are facing lawsuits from burned investors seeking to recoup an estimated $273 million in funds.
The “red flags” listed in the Wall Street Journal report are the same points the United States Security and Exchange Commission warns investors to look out for when considering investment opportunities. To demonstrate what these “red flags” look like in action, the SEC launched a fake ICO website called HoweyCoins that is rife with glaring issues like promises of guaranteed returns and celebrity endorsements.
Celebrity endorsements are among some of the biggest warning signs when dealing with ICOs, as past pre-sale campaigns for cryptocurrency tokens featuring the likes of Floyd Mayweather, Steven Seagal, and Jennifer Aniston have all either been shut down, or have been hit with lawsuits from scorned investors.
On the flipside, Binance CEO and crypto pseudo-celeb Changpeng Zhao published a blog championing ICOs for being easier and performing better than venture capital funds. So long as ICOs continue to be effective tools for funding projects, they are a mainstay within the crypto industry, so it is important that investors do their due diligence before investing.