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Run from Celebrities Promoting ICOs

Cryptojacking, ransomware, and celebrities. Three things to look out for with an ICO?

By CBR Staff Writer

The sad truth is that bright ideas often lack financial backing. It’s not necessarily the wealthy that push progress forward. The flourishing cryptocurrency landscape is full of examples where enthusiasts come up with something promising, spread the word about it and encourage other people to join up by investing in these projects.

Crowdfunding initiatives called ICOs (initial coin offerings) bridge the money gap in such scenarios and allow the startuppers to build their blockchain-based products while distributing what’s called ICO tokens among early backers.

Who knows what would have happen to the remarkable Ethereum project if it weren’t for a successful ICO campaign held from July to September 2014, which collected $18.4 million worth of Bitcoin. Nowadays, Ethereum’s unique smart contact technology is at the core of multiple cryptocurrency models. Furthermore, it boasts successful applications in other domains and industries, including the finance, transportation, healthcare, energy, identity, and food supply sectors.

Amid the rampant cryptocurrency boom, various fraudulent schemes have splashed onto the scene lately. Cryptojacking and ransomware harm the most. In addition, ICO exit scams have become the scourge of this ecosystem too. The idea is to lure investors via rogue, ungrounded claims and then grab the funds and disappear without a trace. A few recent scams of this sort were the phony initial coin offerings backing the LoopX and Confido projects. The former defrauded wannabe stakeholders of $4.5 million.

Malicious agents can deploy some decent marketing to bolster these frauds and make them appear as plausible as possible. One of the most defiant methods of promotion is to get famous people on board. What do you think the boxing champion Floyd Mayweather, singer DJ Khaled and actor Steven Seagal have in common? They have all endorsed questionable ICOs and may even face some legal problems over this.

Centra ICO fiasco featuring Floyd Mayweather and DJ Khaled

Two celebs got their reputation tainted in a fraudulent initial coin offering that took place last year. One is Floyd Mayweather, the undefeated boxing champion and currently a boxing promoter. The other is DJ Khaled, a popular American musician and record producer.

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Both got involved in a fundraising campaign for Centra, an alleged combo of a blockchain wallet and prepaid card service purportedly allowing holders to spend their cryptocurrency assets for purchasing various products. The sale of the project’s CTR tokens lasted during September 19-26, 2017. Centra co-founders Robert Farkas and Sohrab “Sam” Sharma raised $32 million during the ICO.

Floyd Mayweather and DJ Khaled endorsed Centra’s ICO. The former posted several advertisements on his Twitter and Facebook pages, encouraging people to invest in CTR tokens and boasting how easily he could spend cryptocurrency buying goods with Centra debit card. It’s noteworthy that the boxer had previously also touted questionably legit Stox and Hubii Network ICOs, calling himself “Floyd Crypto Mayweather” and posting pictures on his Instagram page with a heap of cash. DJ Khaled also posed as the “official brand ambassador” at Centra. The celebrities, obviously, promoted the startup for a compensation.

On April 2, 2018, the U.S. Securities and Exchange Commission (SEC) flagged Centra ICO as a fraudulent campaign. According to the SEC press release, the firm co-founders sold unregistered investments to backers and claimed to collaborate with Visa and MasterCard while actually having no relationship with these debit card services. Furthermore, Centra masterminded a sophisticated marketing campaign and paid celebrities to endorse the ICO via social media. As a result, Farkas and Sharma were arrested for violating anti-fraud and registration provisions of federal laws. The con artists will be obliged to return the ill-gotten gains to defrauded investors and also pay interest and penalties.

Steven Seagal-endorsed ICO didn’t pan out

Those who remember action films from the 90s sure know who Steven Seagal is. Millions of fans across the world wanted to be as tough as this martial arts actor. Although the peak of his Hollywood career is now history, the echo of popularity continues to be one of his assets. This year, he took advantage of it by publicly endorsing a cryptocurrency startup called “Bitcoiin” (not to be confused with Bitcoin).

Also referred to as Bitcoiin2Gen, or B2G, this Ethereum blockchain-based platform claimed to feature affiliate reward options for investors bringing new participants on board. Additionally, its architects made statements regarding their plans to implement a staking and depository mechanism that would purportedly allow coin holders to raise funds.

Steven Seagal posted tweets promoting Bitcoiin throughout February and early March 2018. In particular, the actor kept the community informed of updates regarding the progress of the ICO and even made an announcement that the coin would soon be listed on some of the world’s biggest exchange services. This marketing was part of his mission as the “worldwide brand ambassador.”

However, things got out of hand for the founders and investors on March 7. The New Jersey Bureau of Securities entered a cease-and-desist order to Bitcoiin ICO stating that it offered unregistered securities. Furthermore, the order emphasizes that the project’s developers, managers, officers, employees, controllers, and directors are anonymous, which per se raises some additional red flags.

Three weeks after this move of the authorities, the Bitcoiin crew made a statement that the founders and Steven Seagal were “exiting” due to the end of the ICO period. In this message, they also debunked allegations about the platform’s staking or referral program. One way or another, the fact persists that Bitcoiin ICO has been labeled potentially fraudulent, and Seagal’s involvement might do him a disservice.

The bottom line

Celebrity endorsements of initial coin offerings are certainly catchy but they can throw people off their trail. In light of the growing trend, SEC issued a public statement. The organization urged investors to exercise caution with ICOs promoted by artists, sports stars, and other famous personalities. Meanwhile, celebrities who endorse such projects without disclosing the type and amount of compensation may be subject to prosecution for violating anti-touting laws.

If you consider investing in an ICO praised by a celebrity, keep in mind that the person is unlikely to be an expert in the cryptocurrency domain. The endorsement, therefore, does not ensure that the project is legit and safe to join. You are much better off doing your own research and following your intuition in these cases.

There are plenty more legitimate, exciting projects out there.

 

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