ICOs are quickly becoming the most popular way to raise money for startup projects, as they allow the developers to secure early financial backing by selling ICO tokens to the investors. The first successful ICO was conducted by Ethereum developers in 2014, when they managed to raise $18.4 million worth of Bitcoin. Since then the underlying technology of smart contracts has become the basis for many other crypto-projects in different areas, from finance to healthcare.
However, some of the ICOs proved to be nothing but scams, which succeeded in defrauding investors before abandoning the projects. The investors are typically attracted by bold and revolutionary claims of developers, who don’t actually plan to develop anything. The most recent example of such fraudulent ICO is Confido project, which managed to raise $4.5 million before closing.
Trying to makes themselves seem credible, scam ICOs often hire celebrities to do promotional campaigns. For example, Dj Khaled and Floyd Mayweather were paid by Centra to promote their tokens on social media. The project managed to secure $32 million during the ICO, before the U.S. Securities and Exchange Commission (SEC) declared Centra ICO to be a “fraudulent campaign.” The ICO organizers were later arrested and forced to return the collected funds to the investors.
Another celebrity who was implicated in the promotion of shady ICOs is Steven Seagal, who continuously tweeted his support for Bitcoiin project. The actor claimed that the coin will soon appear on major exchanges and presented himself as the “worldwide brand ambassador.” However, at the beginning of March the New Jersey Bureau of Securities entered a cease-and-desist order to Bitcoiin ICO, claiming that it offers “unregistered securities”. The order calls special attention to the anonymity of the developers, which is very suspicious.
In light of these events SEC issued a public statement warning investors about possible fraudulent nature of ICOs that employ celebrities for promotion purposes. Celebrities who take part in such projects will have to publicly announce the amount of compensation they receive, or face prosecution for violating anti-touting laws.