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Last year, a group of influencers started promoting an initiative that seemed altruistic and honorable on its surface. The initiative was a crypto token called Save the Kids, which influencers purported would help children in need while making its investors money. Several of the influencers were connected to FaZe Clan, a community of esports gamers with millions of followers—many of them teenagers. The idea made a lot of sense: to leverage the massive popularity of influencers and the power of cryptonomics to raise money for the less fortunate.
It didn’t work out that way. The token’s value plummeted within days of launch, with large holders immediately dumping their shares. FaZe Clan supporters who had invested in the project complained of losing their money on Twitter. As of today, Save the Kids is virtually worthless. While Save the Kids claimed to have donated over $80,000 to Binance Charity in June 2021, a representative for Binance Charity confirmed to TIME that since they do not accept altcoin campaigns (i.e. newly created tokens outside of the most prominent ones, like Ether and Bitcoin), the supposed donation never went to charitable causes. (FaZe Clan removed one member and suspended three others involved with the coin; they denied acting with malicious intent.)
Save the Kids is just one example of a crypto project in which influencers wielded their sway over fans to extract thousands of dollars, only for the project to collapse upon launch. Scammers have taken advantage of gray areas, crazed enthusiasm around crypto, and the lack of industry regulation in order to trick gullible followers into investing their money. All in all, scammers around the world took home a record $14 billion in cryptocurrency in 2021. And as the space has evolved, so have scammers’ tactics, in order to stay ahead of an increasingly discerning public.
To chart this history, TIME spoke to three YouTubers who devote their time to tracking down and exposing these scams: Stephen Findeisen (known on YouTube as CoffeeZilla), Spencer Cornelia, and Mike Winnet. These YouTubers exist somewhere between hard-nosed journalist and pundit: they use tips, inside sources and public records to show how scammers are taking advantage of a “Wild West” in crypto. “It’s like scams on steroids right now,” Findeisen says. “With crypto, it’s easier to just launch essentially your own Ponzi scheme.”
In this video, Findeisen, Cornelia and Winnet, walk us through how scammers have constantly tweaked their techniques. Here’s how the influencer scam has evolved in the past five years.
In 2016, a new kind of token became the vehicle for a massive deception. The website CSGOLotto allowed its users to gamble using “skins,” an in-game currency that could be bought, sold and traded, in a very similar manner to how NFTs are deployed now. That year, the FTC charged two social media influencers, Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, with deceptively endorsing the service while failing to disclose their stake in the company. They also alleged that the pair paid other gaming influencers to promote the website to their social media circles.
The complaint, which the FTC characterized as their first ever against individual social media influencers, ended with a settlement but no fine, just a warning, as the FTC said it normally didn’t fine defendants for a first offense. Still, they sent out letters to 21 influencers warning them about their future behavior. “Consumers need to know when social media influencers are being paid or have any other material connection to the brands endorsed in their posts,” Chairman Maureen Ohlhausen said in a statement.
In 2017, billions of dollars poured into the blockchain space thanks to ICOs, or Initial Coin Offerings. ICOs allowed new crypto companies to crowdsource funding outside of the regulation-intensive process of a traditional IPO. But while thousands of companies were created in this boom, not all of them offered real products. And the funding brought even more influencers and celebrities into crypto, who were paid by house-of-card companies to promote their new token sales to their followers.
One of those false projects that relied on influencers was Centra Tech, which promised cutting-edge crypto financial tools. Instead, U.S. Attorney Ilan Graff alleged that co-founder Sohrab Sharma was responsible for only creating “fake executives, fake business partnerships, and fake licenses that he and his co-conspirators touted to trick victims into handing over tens of millions of dollars.” Meanwhile, two celebrities who had also profited from the scheme were DJ Khaled and Floyd Mayweather, who the SEC found had been paid $50,000 and $100,000 respectively to promote the project, but had failed to disclose their vested interest. Sharma pled guilty to securities fraud among other charges and was sentenced to eight years in prison; Mayweather and Khaled agreed to not promote securities for three and two years, respectively.
These days, one of the most common types of crypto scam is the “pump-and-dump” scheme, which has existed for decades: Jordan Belfort, the “Wolf of Wall Street,” used it to manipulate penny stocks in the ‘90s. They’ve become increasingly prevalent in crypto due to the lack of regulation in the space, and in the ease of creating new crypto tokens and raising money through social media.
In crypto “pump-and-dumps,” influencers buy a new token, also known as an altcoin, on the cheap; sometimes, they’re gifted shares outright by the coin’s creators. Influencers then use social media to promote the coin so that their fans buy in, driving up the price. They then quickly unload their shares, which often creates a panic and sends the price spiraling downward.
“You will see 1,000x or 10,000x price surges,” says Cornelia. “And that allows the developers and creators to sell off their ownership stake to all the people now caught up in the hype, and it allows them to make exorbitant amounts of money in a very short amount of time.”
In the case of Save the Kids, the YouTuber Findeisen followed blockchain records to expose the predatory actions of several key FaZe members, revealing how the project’s underlying code was changed at the last minute to allow large shareholders to sell off their holdings immediately. There are no lawsuits related to this scam as of yet.
Pump-and-dump schemes have been drawing increased scrutiny from regulators, partially because they’re so familiar. So scammers and influencers have started turning to a newer and grayer area: NFTs. (Read a primer on NFTs here.) “NFTs have a more dubious, strange value,” Findeisen says. “So that when inevitably, when your NFT crashes to zero after you’ve dumped it on your fans… you can say “Well, look, you still got a piece of art.”
Winnet says that he’s seen several of the same bad actors in previous schemes happily sell their followers on NFTs. “These are the same people that, a year ago, were telling everybody how you can earn £10,000 a month from your podcast…These are the same people that were doing property events,” he says. “They just move from grift to grift.”
Findeisen believes that a change is coming—even though, right now, scams are soaring. He believes that governmental agencies and a growing group of amateur sleuthers like himself and others on YouTube are finally taking notice of these scams and building cases using trails of information stored on the blockchain. The U.S. Department of Justice, for example, launched a National Cryptocurrency Enforcement Team last year and seized $3.6 billion in stolen Bitcoin in February. But people hoping to catch scammers no longer need to be from a law enforcement agency.
“In the past, you had to be the FBI… I think a lot of influencers, banks and governments don’t realize how much the blockchain is going to change the way we report things,” Findeisen says. “There’s sort of a crowdsourced intelligence around catching these scams, because now everyone can access all these financial records. So I think a lot of people are going to see old cases start getting prosecuted. And I think people are going to become much more scared to scam people with crypto.”
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