Crypto Scams Like “Squid” Coins Usually Raise Red Flags

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A familiar scenario emerges: a golden opportunity, a unique chance. You are on the ground floor of what will be a financial boon for you. This is what your parent / school colleague / someone you met online says.

You are a little nervous at first. You don’t have a lot of information about the company, but you don’t want to miss this opportunity. The classic fear of missing something (FOMO). So you give money / sign a check / click a button on your iPhone and voila, you are part of this great adventure.

You soon find out that your hard earned money is gone, the person who contacted you is gone, and it is very unlikely that you will ever see your money again. How could you not see it coming?

As long as there has been the possibility for people to engage in trading, scammers and cheaters have been a part of the ecosystem. The cryptocurrency market is not immune to scams.

The “Squid” crypto scam

The latest such mishap involves a crypto, “Squid”, allegedly based on the popular “Squid Game” show on Netflix. To be clear, there is no evidence that the Netflix show is in any way associated with the encrypted room itself. This crypto had a particularly short lifespan – it opened at the end of last month and closed on November 1 after the unknown creators of the coin allegedly fled after cashing in around $ 3.4 million.

The cryptocurrency – described by its organizers as a ‘play to win’ crypto – claimed that it would allow buyers to play the games described by the popular online show. Like the show, the piece “Squid” caught on and had a Twitter account that at one point had over 50,000 subscribers. Likewise, a Telegram channel associated with the play at one point had over 70,000 subscribers.

From October 26 to November 1, the meteoric rise of this coin was astounding, from around a dime to over $ 2,800 per coin. Then the party stopped. On November 1, the coin’s creators embarked on a “carpet pull,” or sold the coin for cash and devalued the coin by depriving it of liquidity. Anyone who invested in the coin (other than the creators of the coin) wasted virtually all of their money.

Part problem red flags were available. First, Squid’s website and white paper (which have since been retired) had a large number of grammar and spelling mistakes. Second, the founders of the token did not have profiles on social sites like LinkedIn. Third, Squid’s social media accounts did not allow subscribers to comment. Finally, the early squid buyers learned that they couldn’t sell their coins and started telling others.

It is impossible to prevent all scams. As the story of the Squid piece shows, these scams can happen quickly. The first and best line of defense will always be the individual considering participating in these “opportunities” looking for red flags instead of giving in to FOMO.

Red flags to consider

Regulators have developed numerous educational resources, such as on Investor.org, to educate the public about the various red flags that those who are considering placing some of their money in crypto should consider.

First of all, does the opportunity sound too good to be true? If so, then it probably is.

Second, is there pressure to put your money in the room right now? A regular tactic is to urge immediate action to avoid the missed opportunity. This tactic is designed to get you not to do your homework, take a look at the room, or the potential drawbacks of the room.

Like any type of purchase, a little homework can go a long way. Some professionals suggest that potential buyers take a period of reflection before making a major decision about the purchase. Such a cooling off period can take some of the emotion and frenzy out of the decision and give the buyer a better ability to determine if they are comfortable making the purchase.

Third, carefully examine the claims made. Claims such as “zero risk”, “risk free” and “absolutely safe” are usually associated with a scam. Check social media presence. Check out what others are saying about the play. Check back diligently to see what reviews there are about the coin (as these may be the most valuable for your consideration).

Cryptocurrency regulators have devoted significant resources to mitigating fraud and scams in the cryptocurrency markets. The CFTC, SEC and other regulators have initiated a number of enforcement actions aimed at obtaining illegally earned funds and returning them to buyers who have been wronged. There is no guarantee, of course, that regulators will succeed in securing ill-gotten gains in any particular case, so the buyer remains the best defense.

Scams are here to stay. They are an unfortunate aspect of a market used by untrustworthy individuals. However, individuals and regulators can diligently seek out and heed red flags of such inappropriate activity.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

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Author Info

Daniel J. Davis served as CFTC legal counsel for nearly four years before joining Katten’s Capital Markets & Funds group in Washington, DC. , enforcement actions, negotiations with financial agencies and internal agency operations, among other areas.

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