Topic: UseCoin Scam (Read 9011 times)

Tell it to silk road. These altcoin scams are becoming more frequent and audacious, so they're bound to attract the attention of the authorities. They're enacted with the tacit cooperation of Exchanges and other online service providers, who are vulnerable to having their premises raided, their servers seized, their businesses disrupted, and their clients financially  inconvenienced. Thgey're no longer sole traders or small gangs operating independently behind a wall of pseudo-anonymity.

Take Syscoin, for example. I had my fingers slightly singed when trading opened on Mintpal, but I managed to bail out with most of my funds intact. Many others have lost substantial amounts. The coin was released with a laughably dysfunctional wallet, by any altcoin standards, because the developers had no intention of delivering a working product. Moolah handled the escrow, and the developers claimed to have returned the released funds. So now Moolah are holding the spoils and the developers are screaming that they need the funds to deliver a working product. Moolah have offered their support in this endeavour, and meanwhile the price has tanked and the volume has dried up. Mintpal supported the release, and they've taken a big hit on volume as a consequence. Moolah operate out of London as a legitimate financial services provider. So if the Serious Fraud Office come knocking on their doors demanding to know the whereabouts of the 'Devs' and the escrowed funds, Moolah will turn them in without batting an eye.

In the meanwhile the 'investors' are growing more angry because the escrowed funds are neither being returned nor used to develop a working coin. And the whole sorry tale is documented in the pages of Bitcoin Forum. You may think it's all a storm in a teacup, and the 'devs' broke no laws. But people are being conned to the tune of tens of millions of dollars, which makes it a matter for the authorities; and investigations could destroy the whole altcoin scene, by targeting the exchanges. Shouldn't surprise me if one or two of the big players are MtGoxed before the end of the year if this continues.

Of course the best time to begin investigating these scams is when the coins are first announced, and the 'devs' are active online. So mark my words, there are fun times ahead.

NYS may say otherwise. Although the motives behind their proposed regulations may not be to protect investors, exactly.

I think everyone is overlooking a key reason why regulatory intervention hasnt occured/will not occur. Governments and the financial industry have no interest/reason to protect crypto currency and the investors who invest in it. Crypto challenges both systems fundementally and their involvement would counter their interests.

You're missing the point entirely, that what you and I believe is rapidly becoming immaterial. Syscoin Mintpal and Moolah launched the coin as a partnership. Just google it to find the press releases and videos. The launch was a fiasco, and now Moolah are holding millions of dollars worth of escrow funds. It's no longer a small scale scam.

Moolah are a registered financial services provider, and subject to investigation when there's the merest suggestion of impropriety. They can't hold the funds indefinitely or release them without incurring the wrath of two warring factions. So the scene is set for an investigation that will lead the authorities to the heart of the altcoin world. And unlike the usecoin devs, Moolah and Mintpal can't just up sticks and vanish. But investors can and will disappear as they see their investments about to go up in smoke. Including funds held in exchanges. And if the exchanges go bust then the whole altcoin scene goes up in smoke.

It may sound alarmist, but if Moolah pay the devs the aftershock will be nothing more than spectacular. And nobody now in their right minds will consider buying sys. With Moolah on board and millions at stake, the financial regulators would be derelict in their duty if they failed to investigate. And they are perfectly entitled to call in the fraud squad if there's any suggestion that the product released was not Fit For Purpose. The fraud squad in turn will coordinate their activities US and other foreign authorities. Leaving Moolah and Mintpal struggling to escape the grip of a heavily publicised partnership.
Interesting times ahead.

I haven't followed sys very closely, so can't make any informed comments really. I believe there was no cap in place for the ipo, which scared me away early on.

The problem when we throw around the term 'fraud' is first even defining fraud. If an exchange releases funds to a dev before a working wallet is out, and their terms clearly state they wouldn't do so... then yeah, it seems like fraudulent behavior to me (whether it's a criminal case is another matter).

But the shady areas are where wallets work fine, and the dev provides a working product as claimed. Most of the Bittrex run ICOs didn't fail because the devs didn't release working wallets. More often it was because the devs bailed... they didn't use any of the funds on the coins themselves and in some cases just walked away entirely. People will scream 'scam' and such, but is it fraud on an exchange's part in any way? How could they know a dev would bail beforehand? Even knowing their identities is of limited help (although better than nothing).

I look at syscoin and see an obvious scam based on promises that the devs had no intention of keeping. But this time it's hand in glove with major exchange... and a regulated financial services operative left holding a Huge amount of escrow. So Moolah have the problem that if they release the escrow they could be accused of participating in a criminal fraud. The devs are claiming that without the funds they can't continue development of the coin. And the intitial investors are wanting their money back. If this one plays out as I think it will then Moolah will be served with an injunction preventing them from distributing the escrow. Mintpal (a moolah subsidiary) will loose a substantial amount of their already dwindling market, and because of the sums involved the fiasco will proceed to a court case, and possibly a criminal investigation.

Moolah should have returned the funds (I wasn't an investor) as soon as the launch went tits up. It wasn't just misfortune. The original wallet was an obsolete buggy version of litecoin with some extra bolt-on features that didn't work. There was no effort went into the project (unlike many alts launched without IPO) and no more intention for it to succeed than Usecoin. But with millions at stake, it won't just be written off to experience, and the aftershock will rock the whole altcoin community. The claim that the devs need the funds to 'get it right' don't match up with any previous alt.

So there's a very good case for bringing charges of fraud, even if they don't make it to trial. And you might get an answer to your question much sooner than you anticipated.

BTW I wasn't a sys investor. I lost a small amount on the launch and dumped my holdings. But Mintpal have lost half their trading volume since the launch, so I fancy I'm not alone in my assessment. A cold launch might be hard to prove as a scam... but an IPO makes it so much easier.

I don't see it happening for all coins. People can also claim they want regulation, but if they truly did, they wouldn't be investing in so many shadier coins to begin with.

People are generally fine with scams/shady coins and such... if they make money. If they get cheated, then it's a problem and they want regulation.

It does bring up an interesting point though. If an exchange lists a coin where  a dev bails or dumps a premine, are they partaking in any form of fraud necessarily? They aren't the ones committing fraud, and in many cases, it's sort of a gray area if the devs themselves are even breaking any laws.

It should be the minimum for any coin, not just IPOs. And it's pointless claiming that nobody wants That. At the current level of fraud it won't be long before exchanges find themselves being targeted for investigation by the authorities. And if they decide on criminal investigation, then it's warrents search and siezure... which will effectively destroy the alts.

My point about a trade association is that members will abide by a common code of conduct. Which will do away with the objection that those adopting the code will lose out. If the major players adopt common codes then the scamcoins can be marginalised to the rogue exchanges. And legitimate coins will have greater freedom to flourish. Good practice by consensus and mutual agreement is the way forward. It's been an essential component of commerce throughout history. Even the Mafia owes it's success to that model.

Bittrex should make changes to their ICO model, but haven't shown any inclination to do so as of yet. The reason being... people are still buying the things. They should institute stronger rules for all ICO coins, require dev identification and hold funds until they are used for what they are supposed to be used for, with a full ledger.

Again, it comes down to money. I expect they are hesitant to do this, with the idea that other exchanges will then eat up all the trading fees. Although right now it appears only c-cex is embracing the ico model, so not so sure they have much to worry about.

I'm sort of surprised people paid into usecoin to begin with, to be honest. I looked at it briefly, signed up for the freebie coins, then passed on it as it looked too sketchy. A minimal requirement for any ico should at least be some form of dev identification, be it pod or coinssource's trust rating, through an exchange checking ID, or just announcing who they are. At least that should be the min. requirement folks should use when thinking about investing in any ipos.

Yes, just looking through the list of recent Bittrex launches, a lacklustre string of pump and dump, now giving way to the pre-dumped. It's like a factory churning out new coins, wringing out every ounce of value from eager punters, then ditching the worthless remains. Fifteen pages of (mostly) shitcoins.

Do you wonder that I have grave doubts about the future of these exchanges, and altcoins? The writing's on the wall, and the exchanges need to up their game. Codes of conduct, complaints procedures, and a self-regulating trade association. Before the FBI step in and call the shots.

Apparently so. If their system has no safeguards in the code for sneaky behavior, it's not necessarily unexpected that something like this could occur. They don't just sit there and watch every transaction manually.

It probably would have been a lot safer if the coin was a Bittrex ico, as I assume the dev wouldn't have been paid until the premine was destroyed, and it'd be more likely it'd be under Bittrex control the entire time. They really shouldn't have offered to destroy coins for an ico/ipo not under their control. Nor even list the coin for trading until the premine was destroyed, which was their main mistake.

I realize people here look at Bittrex as a key culprit, but in many ways they are sort of bystanders involved due to negligence (in my opinion). They should take blame, but in the end, people would have been cheated regardless.

If Bittrex didn't list the coin, the dev would have dumped on c-cex and any other exchanges that took the coin. And even if he didn't dump, he obviously had no plans to develop the coin, so he would walk away sooner or later... resulting in a crash as well. People were doomed regardless, just with the premine dump, it came sooner rather than later.

So the dev opens a regular account on the day of the launch, deposits a million and a half coins, out of five million total (just less than a third of the ipo), and nobody at Bittrex bats an eye. This must be a landmark in the history of due diligence. Are there any more surplus coins lurking in Bittrex accounts waiting to drop on unsuspecting punters? There's one ipo (neoscoin) trading even though the wallet's not due 'til September. That should be a laff.

I do not know if Bittrex had even been given the coins to destroy yet. If so, they would have typically went to a locked account that Bittrex was in charge of. They stated they agreed to destroy the coins as a courtesy, which after this debacle, they no longer will extend.

If the coins weren't sent to be destroyed yet, which is what I assume,  all the dev had to to was use a regular account, send the coins there, and sell them like any regular investor. All people had was the word of the dev that the coins were to be destroyed. I am not aware of any proof that they were held anywhere safely.

Which still doesn't answer the question of how a million and a half unsold coins wound up in a trading account on the day of the launch. Or why the developer should have claimed that Bittrex had agreed to destroy those coins. If they were held for destruction then why were they held in a trading account?
Can of worms anybody?

I am saying that Bittrex did not offer escrow on the coin, so it wasn't one of their ICOs. That is all I am saying. And I know this as it's obvious how the IPO was set up.

Bittrex listed the coin on their exchange for trading before they should have. That is where they are guilty.

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You know this how? Did Bittrex not undertake the initial distribution of the pre-sold coins?

So Bittrex had a million and a half unsold use sat in a trading account on the day of the launch and nobody thought to ask why?
The hole just got deeper. I strongly advise you to stop digging. Perhaps a little due diligence would be in order.