Emergence of Fraudulent Acts by Brokers with Group Purchasing of ICO

Dec 06, 2018

Amount of damage from ‘group purchasing of ICO (Initial Coin Offering) is starting to grow bigger as brokers have intervened with a structure where representatives for group purchasing directly talk to ICO project teams.
Recently, there was an incident where a CEO of a venture investment company decided to make an extreme choice as the result of not being able to pay back money that was collected from many investors. There was another incident where a representative for group purchasing suddenly disappeared with money.
According to industries, there have been many incidences where representatives for group purchasing of ICO disappear without distributing money back to fund-raisers.
Group purchasing is a process where fund-raisers, who cannot meet minimum amount for participation, gather money (usually Ethereum) to carry out ICO. It also comes with benefits such as discount rate that is higher than that of private ICO.
Controversy around ‘group purchasing of ICO’ has come to the surface when there was an incident where a CEO of a venture investment company that pushed for group purchasing of cryptocurrencies such as Quark and Thunder decided to make an extreme choice. There was another incident where a representative for group purchasing of Bgogo suddenly closed SNS chatroom.
Industries believe that the main reason why there are continuous fraudulent acts involving group purchasing is intervention by brokers. There has been an increase in number of cases where foreign investment companies are brought in to have better conditions as it is relatively easier to gather more investors when an investment company is involved.

Emergence of Fraudulent Acts by Brokers with Group Purchasing of ICO

Fact that collected money or cryptocurrency is stored within individual wallets rather than prima blocks is also a problem.
Prima block is based on Ethereum Smart Contract and it is a tool to carry out group purchasing more transparent and more effective. Although it requires 0.5% fee, collected money can be sent directly to ICO project teams.
Industries point to moral acts of representatives and brokers for group purchasing as the main cause.
“Amount of damage has grown bigger as there are even attention diverters within chatrooms for group purchasing.” said a cryptocurrency investor. This indicates that there was already a possibility of fraud from the beginning.
Unfortunately, people involved with such fraudulent acts cannot be helped by South Korean Government. If ‘repayment of principal and interest’ is not stated within a contract, a fraudulent act cannot be punished as an act of fund-raising without permission. Since group purchasing involves cryptocurrencies such as Ethereum and others that have huge variability, it is not easily to calculate amount of damage. Fact that group purchasing process takes place within telegrams that do not leave history of conversations also makes it difficult to accurately inspect damage.
“Although contracts for group purchasing need to be looked at individually, it is possible to charge someone with a fraudulent act if he or she unconditionally promised profits.” said Park Joo-hyun, who is an attorney from Gwanghwa Law Firm. “If there was an attention diverter within a chatroom, it can also be seen as an act of conspiracy.”
Staff Reporter Ham, Jihyun | goham@etnews.com

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