NEW YORK – If you’ve been around long enough to remember the days when internet-related initial public offerings (IPOs) were all the rage, then you likely also remember how many of the “hot” tech startups of the day turned out to be nothing but hot air, once all the smoke (and mirrors) had cleared.
With all the current excitement surrounding cryptocurrency, it’s no surprise to see an explosion in initial coin offerings (ICOs) or “token sales.” In fact, there are so many ICOs popping up, sites dedicated to tracking and announcing them require a great deal of scrolling just to get a bird’s eye view of the action.
As with any investment (or perhaps even more so than with most investments), putting your money into an ICO is not something you should take lightly. If ever there was a call for being particularly cautious about doing your due diligence, it’s when investing in one of these crypto-startups.
Unfortunately (if also unsurprisingly), in a rush to cash in on the cryptocurrency fad, it appears some investors are not exercising as much caution as they should.
“Whether you are buying in a private placement of securities as a venture capitalist or buying in an ICO as a crypto enthusiast, there are certain things that you need to be careful about,” Fred Wilson, founder of Union Square Ventures, wrote on his blog back in June. “And right now, with all of the enthusiasm for crypto assets out there, I am very concerned that nobody is being careful about anything.”
A month after Wilson wrote his cautionary post, the Securities and Exchange Commission (SEC) published an investor bulletin underlining the risks associated with ICOs.
“These activities may provide fair and lawful investment opportunities,” the SEC wrote in its bulletin. “However, new technologies and financial products, such as those associated with ICOs, can be used improperly to entice investors with the promise of high returns in a new investment space.”
One group of investors likely wishing they’d been more careful with their money includes people who sank their Ethereum into Fantasy Market, a never-realized live webcam platform which was pitched as a revolutionary market disruptor.
In a white paper published in August, Fantasy Market and its CEO, Jonathon Lucas, laid out its case for the opportunity presented by the adult camming space – an opportunity the authors of the white paper asserted to be a function of shoddy treatment of performers, poor design of existing cam networks/sites and other significant shortcomings.
“Many performers have become disenfranchised by the industry’s inequitable wealth distribution. The existing financial incentives are not structured to motivate performers to engage in meaningful interactions with their clients,” the white paper stated. “It should come as no surprise that these employers, who care little about the financial needs of their employees, also do not care about the needs of their clientele.”
The white paper also claims the company “gathered feedback from hundreds of live-cam enthusiasts” in coming to its conclusions.
“They all echoed the same sentiment,” the white paper continues, “with comments such as, ‘I wish I had more control over what happens during the show’ and ‘The girls seem distant and disinterested. I don’t think they’re having fun anymore.’ These disheartening remarks reconfirmed what we already knew – that the industry’s unethical treatment of women has caused a sharp decline in client satisfaction.”
While the platform is presented as a godsend for cam performers, the white paper’s central pitch for Fantasy Market revolved around giving the client the ability to “control the show.”
“Allow us to introduce Fantasy Market: where the women are valued, the experience is exceptional, and you control the show,” reads a quote attributed to Lucas in a section entitled “The Control Problem.”
Much of the Fantasy Market white paper extols the virtues of the platform itself, which is presented in a series of screenshots with labels like “Tutorial of ‘Live Performance View’” and “Client/Performer Smart Contract Graphic,” with present-tense text which suggests an already-developed site which is just waiting for investment to push it to greater heights.
There was just one problem with that presentation: The platform being promoted in the white paper didn’t exist as anything more than a concept at the time of the whitepaper’s publication.
“Lucas also admitted that the platform for the cam shows, the product at the center of the ICO, hadn’t yet been built,” wrote Kevin Dugan of The New York Post in early November, by which point it had already started to look like the wheels were coming off the Fantasy Market vehicle.
Maybe Dugan just wasn’t patient enough, though; after all, the white paper didn’t claim Fantasy Market would be online by November 4.
“Our roadmap is well defined, and our path to public launch is clear,” the company stated in its white paper. “By this December, Fantasy Market will be a live, fully functioning marketplace.”
December has come and gone, though, and now all Fantasy Market and its irate investors have to show for the passage of time is a statement on FantasyMarket.com about the refund process – which includes a note reflecting the fact investors will not be refunded based on the current value of Ethereum, but the price of exchange at the time of their investment.
“All cryptocurrency investments were accepted in terms of USD, and the conversion rates used were determined by the market price at the time of the investment,” reads the statement. “Similarly, investments are being returned at the USD rate in which they were received. For example, if 1.5 ETH was invested when 1 ETH = 1,000 USD, then 1,500 USD will be returned to the investor, regardless of the current price of ETH.”
As observed by one of Fantasy Market’s dissatisfied investors, this method allows those who received his Ethereum investment to pocket the difference in the cryptocurrency’s value, which has increased substantially since the Fantasy Market ICO.
“I wrote threatening to file police and FBI reports,” the alleged (and anonymous) investor claimed. “Within hours they refunded me Ethereum with a dollar amount equal to what I had contributed in early September, but since the coin has more than tripled in value since then, they kept the rest of my contribution, essentially stealing quite a lot of money from me.”
Buyer beware, indeed.
