WOLF & CO Insights 6 Way to Spot Malicious ICOs

6 Way to Spot Malicious ICOs

For investors, the allure of a potentially high return on investment (ROI) can be almost too tempting to pass up—and for many, investments in an Initial Coin Offering (ICO) can reap exceptional benefits. However, hundreds of scammers and thieves continuously take advantage of this yearning for profit, and in 2019 alone, over $4B in investment losses were recorded in the crypto sector due to scams and fraud.

The U.S. Securities and Exchange Commission (SEC) warns investors to be wary in this realm due to an extreme lack of ICO regulation. The SEC has issued various resources detailing steps that investors can take to avoid scams, asking them to take the time to fully understand the offer and not rush into a deal without having a firm grasp on the whole picture.

Warning Signs of Malicious ICOs

  1. “Guaranteed” high investment returns or overarching theme of “get-rich-quick”
    • Investments always carry some level of risk, which is reflected in your rate of return. If the investment is 100% risk-free, then the return will most likely be extremely low. Fraudulent ICOs focus on convincing investors that high returns on the investment are “guaranteed.” Do not fall for this. Avoid websites and offers that use language such as “once-in-a-lifetime,” “completely safe,” or “zero risk.”
  2. Complicated jargon
    • Scammers often try to conceal their scheme by creating pitches surrounding their technology that are complicated and hard to understand. Also, if there are many grammatical errors in the proposals, it could point to a fraudulent investment.
  3. Offers sounding too good to be true
    • Investment opportunities with little to no risk and guaranteed extremely high returns only exist in fairytales. If an offer makes these seemingly-positive claims outright, it’s probably fraudulent. The SEC urges investors to compare promised returns with returns on well-known stock indexes. If the ICO seller claims you will receive a number far higher than the well-known stock index, the venture could be fraudulent.
  4. Unsolicited offers
    • Exercise caution when virtually approached (via email, social media, text message, etc.) with an offer from an unknown sender. Many scams use mass-spam messaging to target millions. Don’t get caught up in the mix.
  5. Pressure to purchase immediately
    • Take a step back and investigate the offer. Legitimate offerings understand that investing is a major decision and will not try to pressure you into purchasing immediately. However, scammers rely on urging customers to buy instantly on the site.
  6. Unlicensed sellers
    • If the person or firm with whom you are dealing is unlicensed or unregistered, they are likely involved in an investment fraud scam and you should avoid.


By following these guidelines, investors will be able to more effectively protect themselves from making an investment in a fraudulent ICO, resulting in theft or loss. To learn all of the major red flags to beware of, check out the SEC’s Howeycoins ICO page—which serves as an example of what a fraudulent ICO page would look like.