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Navigating Crypto Scam Waters: Study Exposes Increased Fraud Potential in Celeb-Backed Token Offerings

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Recent studies indicate a correlation between the involvement of celebrities in promoting cryptocurrency projects and the increased probability of those projects being fraudulent.

In the study titled “The Impact of Celebrity Endorsements on Cryptocurrencies,” Joshua T. White and Sean Wilkoff, both former economists at the SEC, examined the consequences of celebrities endorsing different initial coin offerings (ICOs).

The researchers discovered that there was a significant rise in fraudulent activity related to initial coin offerings (ICOs) that received endorsements from celebrities. Their findings indicated a 23-26 percentage point increase in scams until September 2019 and a further 39-40 percentage point increase in fraudulent ICOs until April 2023.

The researchers emphasized that this “suggestive evidence” serves as a warning sign for investors. The study specifically analyzed the actions of 21 celebrities, such as Floyd Mayweather, Snoop Dogg, Paris Hilton, and Lionel Messi, during the period from 2016 to 2018.

Celebrity-Backed ICOs: Profits Soar as Star Power Drives Crypto Investment

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Navigating Crypto Scam Waters: Study Exposes Increased Fraud Potential in Celeb-Backed Token Offerings 2

Joshua T. White explained in an email to Decrypt that their assumption was that celebrities could enhance the visibility of cryptocurrencies due to their extensive social media presence, which could trigger a fear of missing out (FOMO) among potential investors.

Considering the nascent nature of blockchain and cryptocurrency, the researchers were uncertain whether celebrities possessed the expertise to identify reputable projects or the knowledge about legal obligations when endorsing a specific coin without disclosing any compensation.

Additionally, the researchers discovered a notable pattern: celebrity endorsements were more likely to be associated with scams when the celebrity’s profession did not align with the product of the ICO, based on their sample data.

On the other hand, the researchers found that when a celebrity’s profession aligns with the product of the ICO, such as a soccer player endorsing an ICO that aims to fund a blockchain-based sports gambling website, the likelihood of it being a scam decreases.

According to White’s comments to Decrypt, this observation indicates that celebrities tend to exercise greater diligence or possess a better comprehension of the product they are endorsing when they understand the specific use case of the token. To illustrate, he drew an analogy between a soccer player endorsing cleats versus shampoo, suggesting that the player would likely have a better understanding of the cleats’ features compared to the chemical composition of the shampoo.

In the research’s conclusion, the authors emphasize the importance of improved understanding and due diligence for both investors and celebrities when it comes to cryptocurrencies. They underscore the necessity for both parties to familiarize themselves with the associated risks before endorsing any digital asset.

DFPI Unveils Crypto Scam Tracker To Help Californians Avoid Fraudulent Activities

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The Department of Financial Protection and Innovation has taken a significant step towards safeguarding Californians from cryptocurrency scams. In an announcement, the agency unveiled the DFPI Crypto Scam Tracker, “a database searchable by company name, scam type, or keywords.”

As per the DFPI, scammers are exploiting people’s growing interest in digital assets to prey on vulnerable individuals in California. The move is in response to the increasing prevalence of scams in the crypto space and is part of the department’s commitment to protecting consumers and investors.

With the Tracker, consumers and investors can research complaints and scams that the public has reported. The goal is to help individuals spot and avoid crypto scams, thereby preventing harm to themselves and others.

DFPI Commissioner Clothilde Hewlett stated:

Scammers are in the shadows, using the public’s interest in crypto assets to take advantage of the most vulnerable Californians. Through the new Crypto Scam Tracker, combined with rigorous enforcement efforts, the DFPI is committed to shining a light on these ruthless predators and protecting consumers and investors.”

How the Crypto Scam Tracker Works

The Crypto Scam Tracker also features a glossary designed to help users better understand common scams. The DFPI will continue to update the database as new scams are reported, enabling prompt alerts to protect the public.

Each year, the DFPI receives thousands of consumer and investor complaints. Among the most reported are imposter scams, which are also challenging for individuals to detect. 

As per the DFPI’s findings, imposter websites are frequently reported scams. These websites or companies often have names that resemble those of legitimate businesses or websites operating in the same market. 

This can create significant confusion for consumers, making them vulnerable to exploitation by bad actors seeking to profit from unsuspecting victims. By taking advantage of this confusion, scammers can easily mislead individuals into making fraudulent transactions.

Moreover, among the 36 complaints currently recorded in the Tracker, the predominant cases involved social media and social engineering scams. These fraudulent schemes typically involve users being deceived into taking action through scams on platforms such as Facebook, WhatsApp, Instagram, TikTok, and dating apps.

Furthermore, a significant proportion of these complaints, around Four-fifths, are categorized by the DFPI as “pig-butchering scams,” which are essentially social engineering ploys employed by scammers to build a rapport and gain the victim’s trust.

Related Reading | Terra Founder Slapped With Lawsuit Over $40B Loss

Kim Kardashian Relieved as Judge Dismisses Crypto Scam Lawsuit

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An investor-led class action lawsuit against EthereumMax’s creators and celebrity backers Kim Kardashian and Floyd Mayweather Jr. over their social media promotion of the cryptocurrency was dismissed by a federal judge on Wednesday.

Investors who purchased EMAX tokens claimed they had lost money after believing the celebrity influencers about the value of cryptocurrencies. According to the lawsuit, the defendants conspired to unnecessarily inflate the value of EMAX tokens.

Judge noted that he recognized worries about celebrities including Kim Kardashian

According to the judge’s ruling, Michael Fitzgerald, “celebrities’ ability to readily compel millions of followers to buy snake oil with unprecedented ease and reach” is a legitimate concern raised by the lawsuit’s claims.

“But, while the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment.”

wrote Fitzgerald, of the Central District of California

According to the judge’s decision in U.S. District Court in Los Angeles, the plaintiffs’ claims were not sufficiently supported, particularly “given the heightened pleading standards” for fraud claims.

According to court documents, the plaintiffs in the case included Steve Gentile and Giovanni Perone, the co-founders of EthereumMax, as well as Justin French, a consultant, and developer for the cryptocurrency, in addition to Kim Kardashian, Mayweather, and former Boston Celtics star Paul Pierce.

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Kim Kardashian Relieved as Judge Dismisses Crypto Scam Lawsuit 4

In his decision, Fitzgerald stated that he would permit the plaintiffs’ attorneys to resubmit their lawsuit after revising some of their claims under a number of the laws cited in the initial complaint, including the Racketeer Influenced and Corrupt Organizations Act, or RICO.

The dismissal came after investors in the defunct cryptocurrency exchange FTX submitted a class-action lawsuit against former FTX CEO Sam Bankman-Fried and celebrity clients of the business, including Tom Brady of the NFL. They claimed that they had overstated the value of the company’s cryptocurrency tokens in their marketing materials.

The decision also came two months after Kim Kardashian agreed to settle SEC allegations that she failed to disclose a $250,000 payment for promoting EthereumMax on her Instagram account by paying $1.26 million and refraining from promoting cryptocurrencies for three years.

In his decision on Wednesday, Fitzgerald stated that the EthereumMax lawsuit is part of a larger controversy involving celebrity and influencer promotional tactics.

Metallica Urges Fans ‘Seek And Destroy’ Crypto Scammers Before New Album Launch

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The fact that iconic metal band Metallica warned fans of cryptocurrency giveaway scams just before the release of its eagerly anticipated new album, 72 Seasons, makes it very clear that criminal actors have done no research left undone.

Scammers have begun impersonating metalheads on social media in an effort to capitalize on the excitement around the release of the metal band’s new album and impending tour. However, Metallica was quick to draw attention to “the dark side of social media,” urging followers to avoid Crypto giveaways in the name of the band, saying,

“Let’s be as clear as possible. [Metallica crypto giveaways] are scams.”

It was recently reported that an increase in front-running scams on YouTube, which CertiK, a blockchain security company, claims has increased by 500% in the past year. The persistent metal band’s scams are a factor in the data since the band issued a warning about bogus YouTube channels that direct users to malicious phishing websites.

Additionally, the band’s fans were urged to refrain from communicating with anyone other than verified accounts while dealing with information that might seem “wild and crazy to be true.”

Metallica Names List Of Social Media Channels

The advisory intends to warn non-crypto and general enthusiasts who may be easy targets of the new fraud, even if the crypto community is aware of the telltale signals of a scam.

To prevent their followers from falling for the widespread cryptocurrency giveaway frauds, Metallica also provided a list of their official social media accounts.

As deepfake videos appeared promising a “giveaway” that would “double your cryptocurrency,” the cryptocurrency scammers spared no one, not even the victims of FTX CEO Sam Bankman.

According to local news outlet Channel News Asia, the police warned the public on 19 November 2022 about a website that requests FTX users’ login information and purports to be housed by the US Department of Justice. Targeting local investors concerned by the FTX collapse, the unnamed website asserts that clients “would be able to withdraw their funds after paying legal fees.”

The films in question propagate false information about the strategy for recovering FTX’s funds by using audio that has been altered and old interview footage from SBF.

Crypto Scams Alert: Expert Compiled Active Scammer Strategies On Twitter

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A cyber security expert who goes by the name of Serpent wrote a detailed post on 8 currently active crypto/nft scams running amok on the social blogging site Twitter.

The analyst who heads artificial intelligence and community-powered crypto threat mitigation system, Sentinel shared how fraudsters utilize multiple channels like URLs, hacked verified accounts, fake projects, fake airdrops, and malware to target uninformed crypto users.

The first of them is spoofing URLs using lookalike Unicode letters. Here Hackers use visually similar characters to deceive people in online phishing scams.

Next, scammers masquerade as OpenSea representatives and attempt to induce a state of urgency to trick users into visiting a phishing website.

“This scammer, in particular, botted the likes, retweets & replies to his tweets to make it look legit, then locked the tweet so no one else can reply. They also use bots to mass DM people on Twitter linking them to the tweet, or mass mention people on the tweets”, Serpent wrote.

Another most common tactic is by using hacked verified accounts, bad actors here usually launch fake airdrops/mints, where they can get pretty creative.

Fake P2E Game/Project

Here, fraudsters target high-value NFT collectors, by impersonating/creating Play-To-Earn projects and releasing a “beta version” which is filled with malware.

Fake Art Commissions

“This is an individualized attack [predominantly targeting artists] commissioning fake work for an illegitimate company.”

Scams That Prey On The Already Fallen

The analyst, who has over 253k followers on Twitter, has expressed concern over the rise of sophisticated strategies after a recent wave of crypto phishing scams and protocol hacks incidents.

Serpent then brought light to Crypto Recovery Scam that is used by malicious actors to trick those who have recently lost funds to a widespread hack, stating:

“I’m sure most of us have seen these bots in the reply to tweets containing certain keywords. Simply put, they attempt to target people who have already been scammed, and claim they can recover the funds”.

As per Serpent, these scammers claim to be blockchain developers and hunt down users that have been victims of a recent large-scale hack or exploit, asking them for a fee to deploy a smart contract that can recover their stolen funds. Instead, they “take the fee and run.”

Over $1 Billion in Crypto Scams in 2021 Points to Social Media as the Root Cause

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According to the US Federal Trade Commission, social media and cryptocurrency are a “combustible combination for scams,” with social media platforms accounting for over half of all crypto-related scams in 2021.

The research, which was released on Friday, indicated that scammers stole up to $1 billion in cryptocurrency this year, a more than five-fold increase from 2020 and over sixty-fold increase from 2018.

The amount of cryptocurrency lost as of March 31 was already reaching half of the projection for 2021, indicating that progress isn’t slowing.

Crypto scams are more than ever

The top platforms utilized for crypto frauds, according to the FTC, were Instagram (32%), Facebook (26%), WhatsApp (9%), and Telegram (7%). Interestingly, despite being clogged with spam and scam bots pushing fraudulent coin giveaways, Twitter, the social media medium commonly used by the crypto-community, was not listed.

Investment Related Fraud was the most common type of crypto scam, accounting for $575 million of the total $1 billion in fraud reports to the FTC’s Consumer Sentinel Network.

According to the FTC, frequent investment scams involve a so-called “investment manager” contacting a client and promising to grow their money if the consumer purchases cryptocurrencies and deposits it into an online account.

Impersonating a celebrity who can multiply any cryptocurrency sent to them or promising free cash or cryptocurrency are two other tactics. Scams involving investment in false art, gems, and rare coins, phony investment seminars and advice, and other miscellaneous financial scams are also included in this category, according to the FTC.

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Over $1 Billion in Crypto Scams in 2021 Points to Social Media as the Root Cause 6

Romance Scams, with $185 million in losses, were the next highest crypto-fraud-related losses, in which a love interest tries to persuade someone into investing in a crypto scam.

People in their 20s–49s were the most likely to lose crypto to a fraudster, with those in their 30s being the heaviest hit, accounting for 35% of total reported fraud losses.

The amount of cryptocurrency lost increases with age, with the median individual recorded cryptocurrency losses for those in their 70s reaching $11,708, compared to just $1,000 for those in their 18s and 19s.

Australia’s Commonwealth Bank Falls Prey to a Crypto Scam

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Commonwealth Bank of Australia has recently come across fake news spreading on social media, including Facebook. The phony news state that the bank has partnered up with a cryptocurrency trading platform.

The news also encouraged people to invest in crypto assets which the bank completely denies and tags as false.

Australian citizens warned of the scam

The reported scam, which is in the form of articles purports as a story on the Australian Broadcasting Corporation, is generally a scam. It lures the customers to click on the link, redirecting them to the scammer’s website.

The scammers will collect the personal details and funds of the users who click on the link.

CBA has reported the issue to the relevant authorities and asked the media publications to take down the fake article.

The bank has warned the customers not to click the links on the articles as it can result in the users losing all their funds. The bank also warned that they would never ask for the customers’ personal information through email or phone calls.

They also asked the customers to be cautious before clicking any link and always navigate to the official website to stay safe and log in.

The scams can also impersonate the bank representatives and can come through phone calls pretending and can gain access to user information, funds and account.

The Commonbank has been a victim of a themed SMS phishing where the scammers spammed the customers with a phishing link pretending to be from the bank.

That’s not it; the bank has cited numerous scams and mentioned them for the customers to stay cautious.

In 2021, the Commonwealth Bank of Australia made history when it partnered with Gemini to become the first high street bank to enable customers to trade cryptocurrencies.

“We believe we can play an important role in crypto to address what’s clearly a growing customer need.”

said Matt Comyn, the bank’s chief executive

The Australian Competition and Consumer Commission (ACCC) filed a lawsuit against Meta last month, alleging that it “aided and abetted or was knowingly involved in fraudulent or misleading behavior and statements by the marketers.”

According to the Commission, Facebook failed to handle fraudulent advertising that was shown on the network. In response, a corporate spokeswoman said the company will “examine the ACCC’s latest filing and expect to fight the proceedings.”

Jake Paul Busted Over $2.2M Serial Crypto Scams by Coffeezilla

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Since the SafeMoon class-action lawsuit, Jake Paul has been beneath the radar. He joins many celebrities, including Nick Carter, Soulja Boy, and Lil Yachty, who has called for a jury trial.

Coffeezilla’s freshly unearthed proof will once again bring Jake into the limelight. According to the suit, these celebrities made fraudulent or misleading claims to investors concerning SafeMoon.

Jake’s promotions on Twitter were not labeled as ‘Sponsored,’ according to Coffeezilla. This is a blatant breach of the advertising guidelines of several sites.

Coffeezilla puts Jake Paul under the radar

Coffeezilla decided to delve deeper into Jake’s other projects in the middle of the litigation and commotion. Sacred Devils, Yummy, Milf, and STICKDIX (Jake’s personal NFT project) are among these projects.

Coffeezilla made a comprehensive video on how he conducted his investigation and gathered all the evidence.

He stated that the most challenging aspect of the inquiry was tracing Jakes’ transactions. Even though “everything on the blockchain is trackable and publicly accessible,” he stated.

At the same time, anyone may build an anonymous crypto wallet, further complicating the procedure. Creating anonymous wallets, he claims, poses a complex problem.

Fake wallets make it easier to trace inexperienced influencers. More experienced con artists, on the other hand, are better at concealing their ownership and siphoning off funds “anonymously.”
The main reason for this is that they can generate hundreds of anonymous wallets.

“Jake Paul is sort of in the middle,” Coffeezilla added. He isn’t as stupid as you think he is, but he isn’t as bright as he believes he is.”

The first step in Coffeezilla’s inquiry was to go into his public wallet, “yourmom169.” Jake was paid 39.9 ETH for his Sacred Satan advertising scheme.

Jake duped his community into purchasing sacred devil NFTs, which resulted in complete losses for the purchasers.

Jake Paul led the NFT project STICKDIX, which earned over $1.5 million. Coffeezilla pushed further to locate additional intriguing facts, even though this information is readily available to the general public.

SafeMoon assisted Coffeezilla in busting Jake by using blockchain research and detecting similar scammy practices.

He was looking for a $190,000 transaction from SafeMoon that had been transferred to Jake Paul’s wallet address. MILF and Yummy transactions were linked to the same wallet.

According to the transaction information, Jake Paul defrauded his community for nearly $2.2 million. With the rise in popularity of cryptocurrency, celebrities entice their fans to acquire dodgy tokens to push up their value before dumping them and leaving them with nothing.

SEC Charges Siblings Over $124 Million Crypto Scam

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The Securities and Exchange Commission (SEC) has accused John and JonAtina (Tina) Barksdale over an alleged crypto scam. Two unregistered securities offerings involving a digital token named “Ormeus Coin” led to more than $124 million in losses for thousands of retail investors.

According to the SEC’s lawsuit, from June 2017 until the present, the Barksdales marketed and sold Ormeus Coin to investors on crypto trading platforms.

In addition, from June 2017 to April 2018, through a multi-level marketing enterprise named Ormeus Global, the Barksdales advertised and sold subscription packages that included Ormeus Coin and an investment in a crypto trading program.

Siblings held roadshows to advertise their scam

As stated, to market the offerings, John Barksdale organized roadshows across the world. At the same time, he and his sister, Tina, directed the development of social media postings, YouTube videos, news releases, and other promotional materials.

According to the lawsuit, the Barksdales arranged for a public website to display a wallet of an unaffiliated third party to maintain the deception that Ormeus Coin was successfully mining crypto.

As of November 2021, the wallet had more than $190 million in assets. Despite the fact that the Ormeus wallets were valued at less than $500,000. According to the lawsuit, the Barksdales are also accused of manipulating Ormeus Coin’s price and misusing millions of dollars in investor monies for personal needs.

Melissa Hodgman, Associate Director in the SEC’s Division of Enforcement said, “We allege that the Barksdales acted as modern-day snake-oil salesmen, using social media, promotional websites, and in-person roadshows to mislead retail investors for their own personal benefit.”

“We will continue to vigorously pursue persons who sell securities in schemes to defraud the investing public no matter what label the promoters apply to their products.”

The lawsuit accuses the Barksdales of breaking federal securities laws and seeks injunctive relief, disgorgement plus interest, and civil penalties in the United States District Court for the Southern District of New York.

Investors should be aware of possible crypto investment scams and investing based on social media, according to the SEC’s Office of Investor Education and Advocacy. The growing popularity of cryptocurrencies acts as a breeding ground for scammers and fake projects to nourish.

Kim Kardashian sued for promoting alleged crypto scam

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Kim Kardashian and Floyd Mayweather Jr. are being sued for promoting the alleged crypto scam regarding the EthereumMax token. The promotion of the said altcoin by the reality star and the boxing legend to their millions of social media followers misled investors.

The lawsuit that was filed on 7 January 2022 in Los Angeles federal court, asserts the celebrities trumpeted tokens sold by EthereumMax (EMAX) only to get its price to rise and to earn themselves a profit “at the expense of their followers and investors.”

The lawsuit stated,

“The company’s executives, collaborating with several celebrity promoters … made false or misleading statements about EthereumMax through social media advertisements and other promotional activities.”

Floyd Mayweather and Kim Kardashian served

A class-action lawsuit was filed last Friday in the U.S District Court for the Central District of California accuses EthereumMax (naming the company specifically) and its celebrity promoters of working together to artificially hike the price of the token.

The reality star, Kim Kardashian, created a flutter on her Instagram post, in 2021, promoting the EMAX token. She wrote, “Are you guys into crypto???? This is not a financial advice but sharing what my friends just told me about the Ethereum Max token!” She mentioned a hashtag #ad in the post, implying that she was paid to promote it.

In the meantime, the boxing legend, Floyd Mayweather Jr. promoted the token in his boxing match with YouTube star Logan Paul. EMAX was accepted as a mode of payment for the tickets to the event; the lawsuit claims that this move had boosted the trading volume of the asset. Mayweather had also promoted the token at a huge Bitcoin conference in Miami, but whether he was paid to do so wasn’t disclosed by the boxing legend, according to the lawsuit.

According to the lawsuit,

“EthereumMax’s entire business model relies on using constant marketing and promotional activities, often from “trusted” celebrities, to dupe potential investors into trusting the financial opportunities available with EMAX tokens.”

Celebrity endorsements can be as glamorous as it seems, but it is always a safer way to play the game by having done one’s own research over investments.