This is how to tell when a crowdfunding campaign is too good to be true, spotting the scammers early and getting them shut down
Writing about tech, you come across a lot of new ideas that may seem at first a bit off-the-wall. Crowdfunding sites like Indiegogo and Kickstarter have helped to kick the “maker” culture into overdrive – bringing us drones, sex toys, and even Oculus Rift’s virtual reality headset.
While some pitches may feel far-fetched, there are some cases that just pop out at you, screaming red warning lights. Here is the story of one such case that led to Geektime getting a campaign taken off the air.
The team from AurumCoin reached out Geektime, asking for a review of its new campaign that had just launched on Indiegogo with a simple intro. It read, “I’m writing to notify you of a new crowdfunding campaign which is launched on Indiegogo for AurumCoin, the first digital currency backed by gold.”
As a frequent writer on Fintech, and blockchain in particular, how could I pass this one up?
The basic proposition here was a digital / cryptocurrency whose value was directly tied to the price of gold. For every coin they sold, the AurumCoin people said, they would be holding onto somewhere between .75 and a full gram of gold.
Much like your friend’s uncle who has that bunker out in the woods, the folks over at AurumCoin are advocating a return to the gold standard. They tout the wonderful history of how currency used to be worth something before the US foolishly lost its way.
But since we are in the digital era, it was time to upgrade, Bitcoin style. As stated in their email, this was to be, “the first digital currency backed by gold.” While they like the international ease of movement that comes with Bitcoin, they say that it is unstable since it “does not have any internal value.”
Clicking on the link, I was brought to AurumCoin’s Indiegogo page and was immediately smacked with some fairly odd details. The video with the falling gold dollar signs was a bit of a giveaway for anyone who has ever seen a financial scam video before, but there were other items that stood out as well.
First off was the lack of any perks. No matter how much you get behind an idea, unless you are giving charity, you should expect something in return. By the time that I made my visit to the page, they had already raised $17,678, and had two months left to go. It is impossible to know whether the backers were real or just the organizers throwing in their own cash, a common tactic even with legit campaigns to show momentum.
Next was the fact that they were a “financial” venture based out of The Valley, Anguilla. Not that I have anything against the folks from the islands, but they are known for being tax havens and having loose regulations in general.
Even more curious was then their claim that, for safe keeping, the gold was to be stored in Zurich, London, Singapore, New York, Toronto, and Hong Kong. This is funny since it is usually folks from these cities that go to Anguilla to keep their assets safe from prying eyes in offshore island accounts.
So who exactly is the team behind AurumCoin, and why do they need backers from a crowdfunding campaign? Geektime reached out with a few basic questions, looking to get a handle on who was running this show.
Their support team responded, explaining that they were “a veteran team of economists and technology experts with the intent on leading to positive global change.” Unfortunately, they could not tell me more since they, “are obligated to operate legally and therefore we cannot reveal ourselves at this point.”
They said that they had chosen to work out of Anguilla since they claimed that, “Anguilla has no regulation[, and] that allows this project to operate completely legally.”
They explained that they needed the campaign to help them buy the gold that would be used for the project, as well as support their operations. Their eventual plan was to charge users small fees for exchanging their AurumCoins back into standard cash. However, they said that if I so chose to, I could have my gold sent to me. I forgot to ask who would pay for the shipping of the bars.
They were very reassuring that, as a backer or future user, my investment was safe. The gold itself, which would be sitting in the cities listed above, would be handled by them and authorized CPAs.
Moreover, they told Geektime that, “Since the currency has internal value due to the gold standard it can’t “collapse.” The physical gold that backs up AurumCoin will be owned solely by the customers. It is illegal for any additional parties to use it. In the worst case, the backing gold will be sold, and the money returned to the customers, each according to his purchases.”
I checked out the AurumCoin website and social feeds.
If I had any doubts of the [ph]ishiness of this endeavour, they disappeared quickly. If you have ever seen a landing page for something like Binary Options, Forex, or another scam, you will notice a couple of key common features.
First is the video on the top of the page whose goal is to rope you in with dreams of greatness, throwing in recognizable names like Google and Facebook to give the aura of tech and big business.
Then take the overall impression from their site. It looks like it was done on the cheap by someone who has not dealt with web design over the past 10 years. Take a scroll down their site and you will see what I mean. If a company is planning on launching an ambitious cryptocurrency, you would expect them to have the resources and know how to put together a decent looking website.
The icing on the cake here was the company’s LinkedIn profile for their customer support representative, Ethan Rothgard.
At first it seems credible enough. However a reverse search of his profile picture showed up on 14 different websites, with the top hit as a basic stock photo on Shutterstock.
Moving to his Facebook profile, with the exception of a post about 9/11 myths, all of the content on his wall pertains directly to AurumCoin or about the gold or Bitcoin markets. While it is not uncommon to have a separate work profile, this is a bit much.
Running a final Google search for Ethan Rothgard (whose name I suppose was supposed to bring to mind the Rothschilds), our friend Ethan only shows up in one other place, making him more suspicious. He makes this post on the digital currency discussion site CoinReport, where he invites readers to come and check out AurumCoin.
By the look of the November 2015 time stamp at 4:27 in the morning, it feels like this thing has been around and weird for a long time now.
Are cryptocurrencies the wave of the future?
Not to make this scam sound all crazy, the AurumCoin team did touch on a legitimate point. The fact that we have to pay exorbitant fees to transfer money between different countries and currencies is a major inefficiency that can only be solved once we move to some kind of cryptocurrency, based on the blockchain. Whether it will be Bitcoin or someone else does not matter. All that is important is that this is the direction. In their emails, they cite other successful projects that are built on the blockchain like Colored Coins. These kinds of currencies can work within communities, carrying an imbued value for the participants that make them work within a specific context. I am a fairly strong supporter of these movements.
That said, nobody believes that those tokens will be used at the chain supermarket anytime soon. How do you pay taxes in a “foreign currency”, or pay rent with them? While some websites do accept payment in Bitcoin (BTC), they are mostly for ventures of varying degrees of shadiness. The AurumCoin support team even admits that getting to the point where their digital currency would be accepted like PayPal is today would indeed be an uphill battle. How exactly they could be integrated into the rest of the economy is the subject of a longer future post. It should be noted that even cryptocurrencies like BTC can be influenced by movements in the real world market like was seen in the recent spike that reached over $1,000 a few weeks ago. Some analysts have pointed to the economic slow down and currency restrictions in China as playing a key role in driving up the value of BTC.
However the idea that we need to go back to gold is simply crazy talk. Gold has no intrinsic value. Sure it can be used for electronics so there is a value, but at end of the day it is simply a soft and shiny metal. Arguments that gold-backed commerce is more stable are generally paired with conspiracies about the government and needing to start getting your “bug out bag” ready for zero hour.
This association pertaining to gold and lack of trust in institutions (read gullible), make it an ideal offering for scammers. It is also a favorite of the Binary Options scammers, where they give people the option of “trading” gold. Famed economist John Maynard Keynes once said that, “In truth, the gold standard is already a barbaric relic.” While the metal may have worked for a certain kind of exchange for much of history, 25 years after Keynes’s death in 1946, former President Richard Nixon made the move to take the US off the gold standard, leaving us with the “baseless” system that we have today. For better or worse, some may say.
With suspicions in hand, Geektime reached out to Indiegogo with some of the details that had been observed, asking them if they knew anything about this campaign.
So how exactly does a campaign like this one make it onto the platform, and how do they get taken down?
True to their word, upon returning to the campaign page, I was met with a resounding image of this:
In a response to the take down, AurumCoin posted on their Facebook page that their Indiegogo campaign had been paused for reasons that are not known to them.
Following up on the notice from Indiegogo and the post above, Geektime asked the AurumCoin team for comment on why the crowdfunding site had put them on ice, and received an interesting response.
“People from Indiegogo knows us personally, they approved our campaign as is (with no perks). We don’t know their inner politics and what happened yet. Indiegogo is afraid of our campaign.. and yes we are looking for big investors and already in process. This is the next step if crowdfunding is impossible..”
While I have very little love for shady scammers, I have to give the AurumCoin team credit for their customer service skills. Not only were they friendly in their emails, but they had some of the best turnaround time on my questions that I have seen from any company. Maybe if they put their efforts into opening a customer service center, they’d be a few steps closer to making that first million.
I leave open the possibility that this crew could have been legitimate, misguided in their vision of economics, but not criminals. However the level of secrecy surrounding the people behind this project, the canned (yet friendly) responses, and a dozen other factors like the fact it revolves around trading gold, lead Geektime to believe that we made the right decision in bringing this to Indiegogo’s attention. We applaud the crowdfunding platform organizers for their quick and decisive action.
In an effort to make sure that this proposition really seemed off, Geektime looked to Maria Papadopoulou, an analyst working with the new Berlin based-cryptocurrency hybrid startup VC Neufund that just had their launch last week for some added confirmation.
Having reviewed the site, Papadopoulou doubles down on the lack of apparent transparency as a troubling sign that this venture may not be on the up and up. It is telling she says that they decided to turn to the general audience on Indiegogo to kick off their fundraising rather than making their offering directly to the crypto crowd.
“In the case of cryptocurrencies or crypto-tokens a bad idea, let alone a scam, would be annihilated in no time,” she explains. “Cryptocurrencies run on a blockchain and target the blockchain community. This community is characterised by transparency and members who do care about the higher cause and vision of blockchain. This makes news spread with great velocity and results in some sort of collective intelligence.”
Characterizing the crypto community as “a hive mind, Papadopoulou is certain that “such an idea as AurumCoin would not be able to ‘play in the blockchain court’.”
Speaking with Papadopoulou, she deflates AurumCoin’s assertion that cryptocurrencies like Bitcoin lack value since they are not tied to a physical asset like gold.
“The value of bitcoin, and in general cryptocurrencies, lies in their technological infrastructure,” she tells Geektime. “This is a very powerful idea because when one invests in Bitcoin, she/he invests in the success of the technology itself. Those who did see the potential back in 2008 were able to see their $1 investment have a value of $1,000 a few weeks ago. This does not happen in fiat (physical). Additionally while gold is considered a ‘store of value’, it is important to note that Bitcoin is evolving into a stable commodity that is speculated to reach close to 3x the value of gold by the end of 2017.”
Staying safe online
If the past year has taught us anything, it is to be skeptical of what we read online. There are people out there looking to do us harm. Do you believe in the goodness of people? Go and hang out on 4Chan for a while in their politics feed and then take a shower. For others, like cyber criminals, stealing on the internet is simply their job. There is no malice: just the desire to make a quick and dishonest buck.
Despite the risks of encountering jerks looking to take advantage of us online, this case should not be taken as reason to stop supporting great campaigns on crowdfunding sites. I for one am actually more encouraged to visit Indiegogo after seeing their quick response to my inquiry. A few bad apples should not and will not keep us from backing innovators.
It is up to us to take responsibility for how we navigate the internet. Just as in real life, if something sounds too good to be true, so it stands online. In those cases where we notice something phishy in places that can do harm to others, please do the right thing and tell an adult.