Billion Grains of Bullshit: Calling out an Exploitive Cryptocurrency Scam

Sometimes life has a weird way of working out for me, like I was bored on Twitter looking for something to write about and then suddenly a scam decided to start spamming my mentions. I love when the scammers come to me! Saves me a step in my research process. This is a pretty blatant and awful scam too. So what is the Billion Coins Scam? It is basically a multi-level marketing scam applied to cryptocurrencies. (Note: I will not be linking to their sites in this piece because I do not want to raise their search engine ranking, instead I will embed screenshots.)

So the very first red flag for me was that it required an upfront wallet setup fee. This is very unusual in the cryptocurrency space. Then saw their claims of free transaction fees and I got really suspicious. After you pay this fee you can then be gifted 25,000 Kringles. (Actually cookie rewards but redeemable for Kringles.) Then things get well let’s call it crazy, but honestly that is being too nice.

This is a claim they frequently make, however, their Twitter account decided to contradict them and said this:

This kind of fundamental disagreement always puts me on edge when I am looking for scams.

This is where I get that sinking feeling in my gut that tells me this is without a doubt a scam. This kind of thing has been tried before. Anything that can only go up is without a doubt a scam and you should avoid anyone selling it. Then I kept reading and started to feel very sick to my stomach.

This chart is complicated but let me explain how it works to the best of my ability. This chart is an attempt to incentivize people to evangelize for this project. It dictates the price at which coins can be bought and sold at on any single day. The idea is that increases every single day, and you need to continue to recruit people in order to maximize the growth rate. It also encourages original stakeholders to sell their original tokens in order to “cash in.” This is classic multi-level marketing structure and it tries to avoid any free market input.

Any attempt to sell your tokens for less than the agreed on price and you lose access to your wallet. Any disparaging remarks on social media mean that that you will no longer be able to use your wallet. So what happens when there are no people willing to take anymore tokens at whatever price they end up at? You are left with worthless, illiquid crap, that a centralized authority can freeze at any time. This isn’t just a scam it’s fundamentally antithetical to the point of cryptocurrencies. The fundamental issue with any pyramid scheme is eventually the world runs out of fools.

Even this part confuses me, if they are guaranteed to always increase in value then as a holder I want to be purchasing as many as possible! However, the truth is if you do that they are not pulling in enough of the wallet fees.

Yes you should definitely do this! Sign up babies! Spam your friends! Get everyone involved in your pyramid scheme. Make sure they keep collecting your wallet fees, you are not the one who will end up profiting from this.

Hard for me to imagine why these places would block your email? You are obviously on the up and up. Nothing to see here.

This is not decentralized. We have already established the admin team can censor. They are lying.

Tell me if you think they have made it over 1,000,000,000 users. (Protip: they haven’t and they won’t.)

This video is where they say that people flow is cash flow. This is classic multi level marketing. Stop watching after that it is revolting.

They also cannot even maintain consistency as to at what price this locks in at.

This story starts to go completely off the rails when you follow the connections of Dan Lutz who is closely affiliated with this scam.

So who is Dan Lutz? Well he is a frequent scammer, and in this video where he is interviewed by Tracy Davison and claims to have met M1.

Now who is Tracy Davison and who is M1? Tracy Davison is another known scammer who promoted a Ponzi scam the SEC brought down. And who is M1? Well strap in because things go absolutely insane here.

There is a cult that is led by “M1” called Swissindo who claim to be able to pay off debt thanks to a vast fortune of gold and platinum, and he claims to be the one true world leader, with the blood of every royal family running through him. (Yes it is that crazy.) It’s also a lie that is used to prey on the most societally vulnerable people.

Also piles of gold sound familiar to me, let’s check and see….

There we go, they did claim to me they had a bunch of gold. In my opinion this scam is closely connected to Swissindo and all of these scams are awful because they take advantage of desperate people who feel like they are out of options.

These scams are preying on people, and selling them a dream that they cannot deliver. It is evil to so wantonly attempt to profit off another’s hopes and desperation.

Just know if you are one of the creators or promoters of a scam like this, working to intentionally defraud people I hate you. And if you are a scammer do not be stupid enough to serve yourself up on a silver platter by saying dumb-ass shit to me on Twitter.

Gonna miss out on my abundance for this post guys

h/t to Kyle Gibson for helping with the research for this.

-Team Red

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How to Identify a Token Project that Deserves None of Your Ether: With Example

Note: Old article being moved over because I hate Medium

Today I want to take a look at a token project that I stumbled across today. It is called Slidebits. It is an ERC20 that is currently (in theory) accepting “donations” of Ether in exchange for tokens. That is not a joke, they are literally called donations. I’m sure the SEC will be okay with that… If you get exit scammed by a token project telling you your money was a donation you deserve it.

Second red flag? THERE IS NO WHITEPAPER! I never would consider investing a penny in any project without a whitepaper, and this project couldn’t even go the Tron route and hack together a plagiarized one. There is literally zero whitepaper. No way to analyze it, or judge it. Never give any money to a project that will not even describe how it works.

Next red flag? The token creator can freely mint more tokens at any point they want. Here is the code that allows it:

it(‘should have a mint function’, async function() { const txResult = await token.mintToken(tokenBuyer, 100, { from: tokenCreator });

This is also admitted on the website:

Gotta love when people are upfront about their ability to print more at a moment’s notice.

Also there is evidence of sloppy OPSEC. For example it appears the crowdsale wallet was funded by the creators personal wallet because when we click to the funding address through Etherscan we find that they are a big fan of Cryptokitties.

You also need to worry about projects that have been going for several months and seem to have raised no funds. Now the amount a project raises is not a perfect symbol of the quality of a project, but if they have failed to raise even a fraction of an Ether so far it is quite likely that there is something amiss.

Finally, well there is an obvious appeal to crypto tokens that work with an app on something like Apple’s App Store please remember that this is a centralized point of failure. It lacks the essential censorship resistance that crypto was supposed to have been built on.

Oh and look at that, that is exactly what happened, and look at the reasons for that rejection, there is no reason they won’t pull it tomorrow. (In case it gets taken down: http://archive.li/qvdZZ)

I could continue, but I think it is clear to see some of the signs that should ensure you immediately avoid giving up your money. Oh and if you cannot answer in one second the advantage of it being a crypto-token instead of fiat, it’s probably a scam.

Update 9/5/19: turns out I was right and it does not need a token. Whoops Archived whoops

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Untethered Tether: Old Developments

Note: This post is out of date but is part of my transition away from Medium.

So today we are going to take a look at some of the Tether drama that has occurred over the last week or so, and it gets interesting fast.

Background: There has been a theory for a while now that Tether has been used to fuel the massive price increase in Bitcoin during 2017.

This was exacerbated by the fact that they did, and still do promise regular audits but have never delivered it. After firing the last auditor they claimed, “Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame.” I do not know about you, but that sounds to me like the auditors were you know trying to do an audit.

Now as for the price pumping.I was introduced to this theory by Bitfinex’ed and was recently supported by a paper published by a couple of professors that suggested again that Tether’s printing was used to increase demand, and was not created “naturally.” Now there have been some criticisms of this paper, including the fact that their method can only show correlation and not causation, and that it was not peer-reviewed, but it did increase public pressure on Bitfinex and Tether to start clearing the air.

Transparency report: So the law firm of Freeh, Sporkin and Sullivan, LLP has released a report meant to show that Tether actually does have the funds to back the Tether’s currently in circulation. Now this report is interesting for several reasons and I am going to try to highlight them for you, and then I’m going to take you down the rabbit hole. So the report can be read here. It basically attests that on June 1st that the accounts (yes there’s two banks now) had enough to cover the number of Tethers in circulation. However, there are several interesting phrases in here, and one that sends us down the rabbit hole.

Well obviously not great news, but probably not unexpected.

It is obviously not an audit, this one should surprise exactly zero of us.

Here is where they admit that this in no way proves that the Tether was always backed.

Good to know that Tether might still be used for money laundering.

WAIT WHAT?! That’s right, a partner for this law firm is an advisor to this bank. Time to go figure out which bank this is now right? I am not a lawyer, but that feels bad, like it could be a conflict of interest (especially if Tether is one of the only clients for this bank….), and casts doubts over this entire report.

Banking: The question we now had to try to figure out was what bank was Eugene Sullivan advising. Several of us set out to Google and dig and try to find something. I even spent several hours digging through the Panama/Paradise Papers in the hopes that I would find a connection and this continued until @eastmother tweeted at me and said this.

When you check the cached version of this page you can see that Eugene Sullivan was an advisor to Noble Bank in Puerto Rico!

This is valuable for a couple of reasons, first and foremost they deleted this and tried to hide it. Which seems odd. Secondly, it helps confirm the research from BitMex that suggested that Noble Bank in Puerto Rico was the most likely steward of Tether’s funds. BitMex also seems to suggest that Tether may be a significant percentage of the total deposits at this bank, suggesting to me excessive scrutiny into Tether likely does not work well for Noble.

Now, Noble Bank is an interesting entity because it is a full reserve bank. This means that they do not fractional reserve like the majority of banks, and they actually keep the cash on hand that they claim. So if your account says $1,000,000 then they have that $1,000,000 in their vault. These kinds of banks often do not offer interest rates, because they cannot afford to. They are not lending the money out and so cannot earn the money from loan interest. Several people have tried to contact Noble and have not been able to get an answer as to what interest rates may be offered. This leads us directly into the next part of the problem.

Business Model/Profit Model: So now we need to try and figure out how Tether could be making money. In their whitepaper they say that the way that they make money is by interest on their bank accounts and by charging a ten basis points fee on transfers to customers (of whom Bitfinex is their sole customer). So if we assume that a significant portion of their assets are being held at Noble Bank, which being a full reserve is likely unable to offer interest, then the only interest they could possibly be getting is from their second bank and from the ten basis points fee. This leads us to two issues. One the ten basis point fee by itself is almost definitely not enough for them to be profitable. So the question then becomes who is their second bank and could they be offering enough interest for Tether to be profitable. If we assume that the larger amount from the two accounts is held at Noble, then the only part earning interest is about $600 million.

Even at about 2% per year that works out to about $1 million dollars a month. It feels as though that would likely be insufficient for Tether considering the size of the operation, but I could be mistaken. However, it is important to remember that Tether is still a business that needs a way to be bringing in money, and so paying attention to this mechanism could be important.

The Brock Pierce Connection:

Now we start to flirt with where this all gets really crazy. Brock Pierce is one of those characters who tends to pop up in weird places and doing weird things in Crypto. He was one of the founder of Tether, though has since (according to him) sold his position in it. He is also the cofounder of Noble Markets which controls Noble International the bank. So one of the founders of Tether, is also a founder of the bank they use, which has an advisor who is also one of the lawyers who issued this memorandum. What we are seeing here is in my opinion serious conflicts of interest that force us to seriously question the nature of all of the relationships in play here. Also in general Brock Pierce has a history of being evasive about his relationship with various entities.

Plus, the more you look into Brock Pierce, the more you recognize how he represents much of the worst of the cryptocurrency space. In March he was interviewed and had this great little nugget to share with the world, ““I don’t care about money, if I need money, I just make a token.” Remember, this is the founder of Tether, and the man currently making sure they have banking. Let’s hope he didn’t need money when he made Tether huh?

The MTGOX Connection: This web of connections gets even weirder when we start looking even further into a very weird part of this story. Namely, these same players are connected to MTGOX. So after the whole MTGOX debacle there were several different players who were looking to be the ones who determined the best way to rehabilitate those were injured in the hack. It turns out that there was a group called Sunlot Holdings who proposed a rehabilitation plan. Both Brock Pierce and John Betts were partners at Sunlot Holdings, and John Betts is now a Founder and CEO of Noble Markets who controls the bank Noble International. Furthermore, Sunlot Holdings was advised by Louis Freeh, one of the cofounders of Freeh, Sporkin and Sullivan LLP the law firm that did the report. None of this is criminal, but it suggests that these players have an entangled and complicated relationship stretching back at least until 2014. The more entangled the relationships the more we have to worry that there is a shared incentive to ensure that Tether survives.

The Whole Web of Connections:

This whole web of connections was recently summarized in this image here. As you can see by how entangled all of these people are it becomes very dangerous to trust the word of FSS as to whether or not Tether is in any form usable.

The Imperial Pacific Connection: While researching Freeh, Sporkin, and Sullivan; specifically the fact that Sullivan was claimed in the report to be an advisor, I, along with others, found that he was connected to a casino called Imperial Pacific. He was part of their advisory board until recently. The reason this is interesting? Imperial Pacific has been dinged for money laundering and human trafficking along with general corruption. Freeh also used to be associated with this very same casino. This starts to paint a disturbing image of who these men are willing to be associated with.

Other FFS Shadiness: This law firm actually has quite a few unsavory connections like this. Eugene Sullivan has previously been dinged for trying to use his former position as a judge to profit. They have also defended Ukranian Oligarchs. There have also been criticisms of Freeh’s tenure as FBI director, including how he had handled the critically important Penn State case.

Phil Potter Leaves: Now as the waters start to get really murky and the pressure on everyone seems to be reaching a fever point, Phil Potter the Chief Strategy Officer of Bitfinex departs. The timing of this is very poor for Bitfinex and Tether as public pressure increases on them. He also claims that he is doing this because Tether is focusing less and less on the US, but to my eye, there banking and the majority of their volume is still in the United States, and so that excuse does not pass muster. Furthermore, we do know that the Fed’s were looking into Bitfinex and Tether and it is possible that he may have flipped to protect himself. Finally the most recent dump started shortly before the news of his departure became public, and as such we do need to wonder whether or not there were people trading on this insider information. Just to be clear I have no strong evidence for either of these claims, but the timing is quite odd.

Weird Connections from Noble: Now we are going to temporarily back to Noble, because there are some weird connections that I cannot fully explain.

I got another tip on Twitter:

that there have been some….interesting websites associated with the same Google Analytics ID as Noble. Including….Blockchain Capital! The venture capital fund that Brock Pierce used to be a part of! Isn’t it fun when little things like that work out? Also a bunch of other “blockchain” focused websites including: Blockchain Alliance, bloq, Chicago Blockchain Center, the Chamber of Digital Commerce, Dunvegan Space Systems (blockchain in space), Silk Road Equity. Now just to note, I do not neccesarily think all of these are connected, because there were also a couple of design sites for something called Neu Entity and so it is possible that is why these are shared. However, it is funny to see Blockchain Capital which is another of Brock’s babies coming up in here.

Other Recent Weird Happenings: So one of the last really weird things that has happened, was a weird transaction of Tethers. Namely there have been some “send-all” transactions which are quite uncommon, and sent primarily to wallets that are “back and forth” meaning they receive it from Bitfinex and then send it back and that’s it. These have happened before, but no one knows why.

Claim that Audit is Impossible: This is my favorite claim that Bitfinex makes. They try to claim that it is impossible for them to get an audit. First and foremost it is important to remember that back in 2017 they had someone who agreed to audit them, and they fired them because, “Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame.” They fired their auditor being thorough….

Best part of this claim is that True USD, which is an incredibly similar stablecoin (with fewer, but not zero problems), gets regular attestations by an actual accounting firm. So apparently their claim that it is impossible, not just for them, but for anyone is false. (Important note, these attestations are only done once a month, and it would technically be possible to game them, but it is still better having an actual accounting firm do it, and having them do it every month.)

Conclusion: In conclusion, Tether and Bitfinex cannot be trusted. Their transparency report has actually helped expose how deep some of their entangled relationships go, and I am now more scared than ever for the cryptocurrency market. Brock Pierce is likely still materially involved in Tether, and is working with them to help maintain banking through his own bank, and even the lawyers have worked extensively with him before. Phil Potter was the first executive to leave, but he will not be the last. I would expect Giancarlo to be next, and when he does leave, I would recommend (not financial advice) to stand clear of the house of cards that is the cryptocurrency market.

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Garcinia Cambogia: Scam

fruto_del_arbol_garcinia
Image courtesy of Markoramses

Note: This is not medical advice.  I am not a doctor nor do I play one on TV.  Always consult with a medical professional before beginning any diet or exercise program.

Garcinia cambogia is a fruit.  I’ve heard the fruit tastes good.  Feel completely free to eat it if you would like.  It becomes a scam when people attempt to market it to people as a weight loss supplement.  We are going to play a game called what does the literature say. Continue reading “Garcinia Cambogia: Scam”