Category Archives: Fraud Alert

Munchee Halted: SEC Shuts Down Initial Coin Offering as an Unregistered Security

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Crowdfundinsider | By JD Alois | Dec 12, 2017

The Securities and Exchange Commission (SEC) has shut down an Initial Coin Offering (ICO) as conducting an unregistered securities offering. This is the first time the SEC has halted an ICO where there were no allegations of fraud representing a new shift in approach by the Enforcement Division of the SEC. At the end of November, the SEC Head of CorpFin stated more enforcement actions were forthcoming. The Munchee shutdown is perhaps the first of many to come.

Munchee, a blockchain-based food review service, was seeking $15 million for an App centered on restaurant meal reviews to create an “ecosystem” in which Munchee and others would buy and sell goods and services using the tokens. Munchee apparently agreed to the SEC action after being contacted by the Feds without admitting or denying the findings. Munchee has reportedly refunded all investor proceeds after the SEC intervened. Munchee commenced the refunds several weeks ago to “ensure it is in compliance with applicable laws/regulations.”

See: SEC charges alleged cryptocurrency scam with fraudulently raising $15 million

Similar to most ICOs, Munchee communicated through its website (since shut down, a white paper, and other means that it would use the proceeds to create the ecosystem, including eventually paying users in tokens for writing food reviews and selling both advertisings to restaurants and “in-app” purchases to app users in exchange for tokens.

In the course of the offering, the company and other promoters emphasized that investors could expect that efforts by the company and others would lead to an increase in the value of the tokens.  Munchee also said it would take steps to create and support a secondary market for the tokens.  The SEC said because of these and other company activities, investors would have had a reasonable belief that their investment in tokens could generate a return on their investment.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  For more information, please visit: www.ncfacanada.org

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SEC charges alleged cryptocurrency scam with fraudulently raising $15 million

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The Verge | By | Dec 5, 2017

The Securities and Exchange Commission has frozen the assets of a cryptocurrency startup accused of fraudulently selling up to $15 million in tokens. Yesterday, the SEC announced charges against PlexCorps, an embattled initial coin offering (ICO) company that advertises an ostensibly stable and approachable cryptocurrency called PlexCoin. The complaint alleges that PlexCorps promised massive returns it was unlikely to deliver, while advertising a nonexistent team of experts and obscuring the past financial crimes of its founder Dominic Lacroix.

PlexCorps has already run afoul of Canadian regulators, who ordered it to stop soliciting investment for PlexCoin; Lacroix himself was previously banned from dealing in securities after allegedly defrauding investors in a micro-loan venture. The SEC said this summer that ICOs could fall under US securities rules, and among other things, it claims PlexCorps failed to comply with the relevant registration laws.

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More damningly, it also says that PlexCorps enticed investors with “outlandish rewards” of a 1,354 percent profit over the course of under a month. Lacroix and his partner Sabrina Paradis-Royer allegedly misappropriated over $200,000 of the investments for “extravagant personal expenditures.” And the SEC complains that PlexCorps flouted Canadian regulators’ rulings — while selling “a t-shirt with a picture of a man making an offensive gesture” at the name and logo of Quebec’s financial oversight body.

PlexCorps disputed the accusations on Facebook. “We are being depicted as robbers, scammers and fraudsters everywhere in the media. They are smearing our name with some allegations that can sometimes be false or misleading,” it said. “We claim that PlexCoin is not a fraud since no one had their money stolen from us and once more, all purchased PlexCoin were distributed.” The company says it will cooperate with US and Canadian regulators, but “what is now being published in the media goes too far.”

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  For more information, please visit: www.ncfacanada.org

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Ottawa phone startup’s fundraising bid dropped over copycat allegations

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CBC news | Sept 19, 2017

Crowdfunding site shut down campaign amid allegations Ottawa company's phone was copy of Chinese model

An Ottawa-based mobile phone company's crowdfunding efforts were shut down Tuesday morning amid allegations the phone they were offering was a copy of an existing model.

Moe Omer, the co-founder of mobile phone company frank., told CBC News that Indiegogo contacted him saying several members of the public had contacted them, reporting his phone was a copy of a phone already manufactured in China.

See: Ottawa Teen's Low-Cost Smartphone To Take On Apple & Samsung

Omer said he explained that the phone's pre-made mold already existed on an online marketplace called Alibaba, but they were making custom improvements and that their edge is that by making a bulk order, they can lower the price.

Indiegogo promised to follow up, Omer said.

"Then we were shut down without notice," he said.

A yellow banner tops the web page now, reading "This campaign has been closed by Trust and Safety due to a violation of our Terms of Use."

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both investment and social crowdfunding, blockchain ICO, alternative finance, fintech, P2P and online investing stakeholders across the country.  NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a vibrant and innovative online financing industry in Canada.  Learn more About Us or visit www.ncfacanada.org.

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Be warned… Kanoa Headphones Shuts Down After One Brutal YouTube Review

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Fortune | David Z. Morris | August 27, 2017

Kanoa, a crowdfunded company promising its backers a pair of innovative wireless headphones, has announced that it will shut down without delivering products to most of them. The shutdown comes after a string of challenges, but the final nail in the coffin may have been a merciless YouTube video posted last Saturday in which a reviewer found numerous basic flaws with the product – and alleged that the company tried to bribe him for positive coverage.

Kanoa’s journey began in 2015 when it's successful crowdfunding campaign promised in-ear wireless headphones with a sharp charging case and smart features like adjustable ambient sound pass-through. According to the company’s parting message, the following year saw them encountering technical challenges and starting over from scratch.

They began to ship a few units to backers and reviewers this month, but they were apparently still not up to snuff. Technology reviewer Cody Crouch, also known as iTw4kz, received a review unit from the company, and... well, things got rough.

Crouch’s review video is like a horrific car crash — hard to watch, but impossible to turn away from. It chronicles his Sisyphean struggle to get the headphones, which were planned to retail for $300, to perform basic functions like connecting to his phone. Kanoa’s promised pass-through feature produced unlistenable feedback, and they didn’t reliably connect when Crouch had his phone in his rear pocket. The fancy charging case, stunningly, wouldn't charge the headphones while plugged in.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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$7 Million Lost in CoinDash ICO Hack

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Coindesk | Wolfie Zhao | Jul 17, 2017

An initial coin offering (ICO) for a little-know startup project called CoinDash was abruptly halted today when it was revealed the sale had been compromised shortly after it began.

In total, the ICO was able to raise $7.53m before the ethereum address it was using to solicit funds was altered to a fake one by an unidentified hacker, resulting in the ether going to another source.

See:  ICOs: New Model of Blockchain Capitalism

At the time of publication, the CoinDash website has been shut down, and the project is asking investors who have been affected to submit information to the provided link to collect the CoinDash token (CDT) they should be rewarded through the sale.

The company's statement reads:

"Contributors that sent ETH to the fraudulent Ethereum address, which was maliciously placed on our website, and sent ETH to the CoinDash.io official address will receive their CDT tokens accordingly."

Notably, as the project is still under attack, and the sale has been terminated.

In a statement, CoinDash urged investors not to send any ether to any address, since "transactions sent to any fraudulent address after the website was shut down will not be compensated."


Via CNBC | |

Fraudsters just stole $7 million by hacking a cryptocoin offering

  • More than $7 million worth of ethereum was stolen in about half an hour.
  • CoinDash said it will provide tokens to buyers except those who invested after its site was shut down.

Around 9 a.m. eastern time on Monday, Shawn Van de Vyver, a dentist in Michigan, went to CoinDash's website to check out the project's initial coin offering — a new way that cryptocurrency start-ups are raising money.

Van de Vyver has been building computers and websites for 20 years and started studying bitcoin when it was trading in the single digits (it's now priced at more than $2,000). He also invested a couple thousand dollars in digital currency ethereum, he told CNBC.

CoinDash is sometimes described as the E-Trade for blockchain and Van de Vyver was interested in tracking the project, even if he wasn't yet ready to invest.

Check out:  Is the SEC About to Crack Down on ICOs?

Shortly after 9, Van de Vyver got a text from a dentist friend telling him that the site had been hacked.

Visitors to the site had been told to send their ethereum to another address in order to participate in the ICO.

People who followed those instructions had their money stolen, according to the website. Over the course of about a half an hour, more than $7 million was routed to the hacker. According to Etherscan, which tracks the movement of ethereum, some 2,130 transactions took place.

"I could've been hoodwinked," said Van de Vyver, 37, in an interview Monday morning. "These are not sophisticated investors trying to invest in a company."

Welcome to the lawless world of ICOs. Start-ups building on blockchain are raising millions of dollars in exchange for tokens that give buyers future access to their network once it's up and running. The tokens also rise and fall in value and can be bought and sold, giving them characteristics of unregulated securities.

The SEC has yet to weigh in on the new market, meaning that buyers have little to no legal recourse if their money gets stolen.

See:  ICO Tracker – Crowdfunding Coins, Tokens and Validator Keys

CoinDash said in a statement on its website that it will provide tokens (CDTs) to people who sent ethereum to the fraudulent address prior to the CoinDash site being closed down. But transactions that took place after the site was shut "will not be compensated," the company said.

"This was a damaging event to both our contributors and our company but it is surely not the end of our project," CoinDash said. "We are looking into the security breach and will update you all as soon as possible about the findings."

A CoinDash spokesperson had no further comment, but referred CNBC to the website.

To assist the investigation, the company tweeted out a form for people to fill out if they tried to purchase coins.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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Detecting terrorism financing in crowdfunds poses ‘significant challenge’: Fintrac report

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GlobalNews | | May 18, 2017

Canada’s money-laundering watchdog is studying the use of crowdfunding platforms by suspected terrorists and says in an internal study that the reporting protocol poses a “significant challenge” in trying to identify such transactions.

The Fintrac report, obtained by The Canadian Press through an Access to Information request, says there is a lack of information available in electronic fund transfer reports on contributors to crowdfunding campaigns.

Financial companies, money services businesses and casinos are legally required to submit the reports to Fintrac for cross-border, electronic transactions above $10,000.

That lack of information poses a problem for financial intelligence, “especially when trying to flag individuals supporting a crowdfunding campaign that may be suspected of being (terrorist financing)-related by an investigative authority,” Fintrac says in the November 2015 report.

See:  Anti money-laundering watchdog assessing vulnerability of fintech startups

The federal agency said the reports typically don’t include information on contributors to crowdfunding campaigns because the amounts transferred tend to fall below the reporting threshold of $10,000.

“Terrorism financing and high-risk traveller cases, in particular, most often entail relatively small amounts of money,” spokeswoman Renee Bercier said in an email.

Daryl Hatton, founder of ConnectionPoint.com, a company that runs three crowdfunding websites, said they don’t have to submit funds transfer reports because that is the duty of the payment processors.

“The short answer is that crowdfunding platforms leverage the anti-money laundering systems of our payment processors,” Hatton said in an email.

“We add our own checks on the identities of the people running the fundraising campaigns but trust the much more sophisticated work our partners are doing in this area.”

Hatton said he has removed a “very small number” of campaigns over terrorism financing concerns. The decision to remove the campaigns was made in collaboration with payment processors and was done more as a precaution, he said.

Craig Asano, the executive director of the National Crowdfunding Association of Canada, said it’s important that there are mechanisms in place to detect such transactions.

See:  In Crowdfunding, Who is Responsible for Preventing Fraud?

The Financial Action Task Force, an international organization that aims to combat money laundering and terrorist financing, flagged crowdfunding as an emerging terrorism-finance risk in a 2015 report.

The task force report said crowdfunding platforms are vulnerable to being exploited for illegal purposes because people can mask the true reason for their fundraising efforts.

It also said there have been instances in Canada where people under investigation for terrorism-related offences have used crowdfunding sites before leaving the country or attempting to leave the country, suggesting that they could be using that money to fight overseas. But details of those cases were not provided.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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Popular Selfie Stick Kickstarter Copied and Undercut by China in Record Time

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PetaPixel | DL Cade |

copy-cat-project-in-china

Remember the StikBox? The creative smartphone case selfie stick raised over $40K on Kickstarter for a product that would eventually cost about $47. But before the Kickstarter was even over, China was selling a perfect copy for as little as 8 bucks.

It’s part horror story, part PSA: if you’re planning to create a mass market product and release it over Kickstarter, be ready to deal with the lightning-quick copycats in China.

Isreali entrepreneur and creator of the StikBox, Yekutiel Sherman, was not ready. He did things the right way: put together prototypes, raised money from relatives to launch a professional crowdfunding campaign, and was prepared to deliver a fun, useful product.

See:  Accessing capital in China and solutions for crowdfunded companies

But just one week after launching his successful Kickstarter, exact replicas started popping up online:

When his backers started finding the copycats, many of which were selling for less than half the discount price they paid on Kickstarter, the backlash was swift and unforgiving:

Are you kidding me? We need the product now. You’re going to have your own lawsuit on your hands if you don’t start producing the products we’ve all paid for. Stop worrying about other companies and distribute your product. You’re company’s barely into its first year and you’re already running it into the ground.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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