Anatomy of a cryptocurrency scam

In November this guesting Alphavillian wrote an article for the Financial Times about the falling price of bitcoin (what's new?). Half an hour later we received a direct Twitter message from an account saying it was a good time to invest in the cryptocurrency, which could become a “second source of income.”

They said with an investment of $300 in crypto, on trading platform Crypto365, we could earn $3,000 in five days.

We write about financial markets more than the average person, but we're not exactly crypto experts. Right from the get-go we were confused by this investment proposition, which seemed unduly complicated and opaque. Was a lack of expertise preventing us from seeing a golden opportunity — or making us a target?

Now, nearly three months later, bitcoin is back under $4,000. Questions we have about the platform remain unanswered. But some elementary investigating makes us think we might not have made 10 times our money.

This is how they said it worked

First, we needed to register on the platform and deposit an initial sum: the recommended $300. A “manager” would then convert the funds into bitcoin, to be traded online.

“All you have to is invest then our company takes over to earn you profits,” the Twitter user said. Five days later the $3,000 would be ready to collect, the only condition being a $200 withdrawal fee.

When pushed for further details, the user said they could not disclose how the platform worked, but stressed they were “very transparent”, and:

All that is required of my clients are [sic] trust, commitment and co-operation.

Crypto365’s website did not offer much more of an explanation, and the listed phone number didn’t work. “Once you deposit, your coin starts to multiply right away,” it read. Happy investors could “support a women’s shelter, pay for unexpected medical bills, get funds for a special project or [support] the many other worthy causes in this world.”

When asked whether investors ever lose money, the Twitter user replied, “no”. The managers “will not make a mistake.”

This assurance came despite the risks outlined on Crypto365’s website, which included the “inherent risk that losses will occur” and that “bitcoin trading is probably susceptible to irrational (or rational) bubbles.”

A little more digging found another almost identical website mentioned in Crpyto365’s terms and conditions, ExploreBitcoin Mining. That site’s phone number was also out of service. But a member of ExploreBitcoin Mining’s online support team — who claimed to be an investor — said both websites offered crypto mining and trading, and were “associated” with a third site, GlobalCoinTopup.

After tiring of our questions, this helper referred us to someone at the third site via an American WhatsApp number. This third representative introduced themselves as a “VIP agent, crypto mining consultant” for the platforms. They said the platforms’ long-term mining contracts offered returns of up to 65 per cent per month, but they were reluctant to provide details about the businesses — particularly “if you are not interested [in investing].”

“You are not here to invest and hate being played with my intelligence,” they said. “As we are talking there are about a thousand [new clients] waiting for replies on how to start-up.”

Some further warning signs emerged

GlobalCoinTopUp, Crpyto365 and ExploreBitcoin Mining’s websites listed a London address on their contact pages, which is inhabited by the Liverpool Street branch of currency exchange service Thomas Exchange Global.

TEG’s business development manager, Rasika Dissanayake, said the company was not affiliated with, nor had any dealings with, any cryptocurrency companies. “We don't touch crypto,” he said, “we are not into speculation.” Mr Dissanayake said the company was looking into the misuse of its address, but had so far been unable to contact the websites.

Meanwhile, customer reviews on ExporeBitcoin Mining’s website included a photograph of happy customer “Denny Mark”. But a reverse Google Image search showed the photo is linked to a Google Plus user named “Alexi Phillon” and a reader of an Irish newspaper named “Andrew White”. ExploreBitcoin Mining’s online support helper insisted Denny Mark was an account manager and a “real trader”.

Crypto365’s and ExploreBitcoin Mining’s websites also listed a UK company number: 10896754, a business called Colobit Limited (which was dissolved in January), according to Companies House. At least another 47 crypto mining websites, most very similar in design to Crypto365, listed the same company number.

(Several of these additional 47 sites also listed a second UK company number: 10874403. This entity is bitcoin Invest Club Ltd, which was also dissolved in January. Its listed address is an industrial building in Cricklewood, but a neighbour said they were unaware of the business.)

When Colobit was registered with Companies House, its listed address belonged to accounting firm Grant Thornton. Grant Thornton — which has since moved — said it had “no prior knowledge” of Colobit, which was “never a client or otherwise associated with the firm or its former address.” Companies House said it did not have “the statutory power or capability to verify the accuracy of the information that companies send to us.”

Several reviews of Colobit also alleged the company was a “scam”. Reviewers on (the page has since stopped working) said payment requests were “pending”, but that no payment had ever come through:

Apparently some people did receive their cash back. But these posts followed a curiously similar format:

Alphaville was unable to contact anyoneworking in management at Colobit, bitcoin Invest Club or any of the other websites.

What the experts say

Being able to find out the details of a crypto mining company and its management is key to investor due diligence, since the crypto “wild west” is littered with “scams and shenanigans”, said Jonathan Bixby, executive chairman of London-listed Argo Blockchain.

Sophisticated scams include Ponzi schemes that might pay an investor “profits” for the first month, but never again — with the initial payout funded using the sign up fees from new investors.

For platforms with genuine mining facilities, said Mr Bixby, long-term contracts are a warning sign, and investors should look to sign up on a monthly basis rather than for years at a time. “When [crypto] prices are down that’s [signing up for long-term contracts] a really bad decision, you have no control . . . long-term contracts are a way to manipulate the system.”

Another “huge red flag”: platforms that offer trading alongside mining, since that gives the company control of the “whole system”, he said — the mining rig, mining pool and crypto wallet.

One way to do due diligence on mining platforms is to ask about their equipment and power suppliers, and where their mining facility is, said Russell Rhoads, head of derivatives research at Tabb Group.

When asked about the location of the GlobalCoinTopUp’s mining rig or any details about its suppliers, its WhatsApp representative said: “All those are complicated as well and kept confidential. Thanks for your time” — and ended the chat.


Throughout our 5-day conversation, the Twitter user continually pressured us to register to Crypto365. A series of increasingly irritable responses followed our questions:

Register and get back to me I'm waiting.
If you are interested you will co-operate.
You are free to look for someone else. Like I said we don’t look for investors. [This seemed a hard circle to square.]

The account, which joined Twitter in October 2018, periodically tweets offers such as “Make $60K in less than 30 days Start investment with $2000 inbox me.” The profile uses an image of well known bitcoin investor Roger Ver, though does not use his name or purport to be him.

ExploreBitcoin Mining’s online helper was also keen to persuade us to invest, using an unusual argument: “There is a reformation in [the] bitcoin market now, now is best time to invest, 1BTC will be over $19,000 before December the Crypto engineers has foreseen it, that was how it went up last year.”

We are yet to receive any response to the several requests for comment sent to Colobit and to numerous websites, including Crypto365. The American WhatsApp number stopped answering our questions after two days, and we've been blocked by the Twitter user who first approached us.

Alas, the foreseen year-end surge to $19,000 did not come to pass.

Related Links:
The bitcoin price is wrong — FT Alphaville
— FT Alphaville
Chart crime as a measure of crypto-desperation
— FT Alphaville

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