Special Report: Little known to many investors, cryptocurrency reviews are for sale

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NEW YORK (Reuters) - When cryptocurrency
issuers want positive coverage for their virtual
coins, they buy it.

Self-proclaimed social media personalities charge
thousands of dollars for video reviews. Research
houses accept payments in the cryptocurrencies
they are analyzing. Rating “experts” will grade
anything positively, for a price.
All this is common, according to more than two
dozen people in the cryptocurrency market and
documents reviewed by Reuters.

Earlier this year, Ukrainian start-up Hacken was
looking to promote its new coin after raising $3
million online in late 2017. Chief Executive Dmytro
Budorin and his team identified a list of almost
200 cryptocurrency social media personalities they
thought could help them, he said.
Hacken paid $7,500 for Christopher Greene, host
of Alternative Media Television - a YouTube
channel with more than 500,000 subscribers - to
review its coin in a video, Budorin told Reuters. In
the 25-minute video, published on June 22, Greene
raved about Hacken’s coin and business,
describing it as a “huge market opportunity” with
“potential 1,000x returns.”
Nowhere in the video - which has more than
92,000 views - is Hacken’s payment to Greene
mentioned. Greene, who used to work for wealth
management firm Merrill Lynch, directs viewers
in the first minute of the video to a disclaimer on
his website that states he “may receive
compensation for products and services” that he
recommends. There is no specific mention of
Hacken, or any specific cryptocurrency issuers,
paying him.
Greene did not respond to emails and phone
messages from Reuters asking about his work for
Hacken.

Four days after the YouTube review was
published, Greene turned to Twitter to brag that
Hacken’s coin was up 14 percent on the day to
$1.54 per coin.
Some people paid attention. Carter Zurawel, a
yoga instructor in Calgary, Canada, replied to
Greene’s tweet: “That Hacken video was great
man! Made me buy a couple hundred.”

The token’s price has since fallen by more than 75
percent to 36 cents. Zurawel told Reuters in
Twitter messages that he lost much of his initial
investment, worth several hundred dollars. He
said he was not aware that Greene was paid for his
Hacken video, but he shrugged off the poor
performance of the currency. “I will probably hold
onto it because I strongly believe that the
cryptocurrency market will rally in the future,” he
told Reuters.

Budorin told Reuters he recognized that the
company’s payment to Greene and other YouTube
reviewers were “unethical.” Video reviews “should
be either done with (a) sponsored tag or only for
projects that (the) reviewer personally supports,”
he said.

Hacken’s approach exemplifies a pay-for-play
hype machine that churns out recommendations
viewed by hundreds of thousands of hungry
investors. Few researchers or experts disclose
their own holdings of the digital assets, which so
far have existed in a regulatory gray area.

The crypto bubble peaked last December: bitcoin,
the largest cryptocurrency, is down more than 80
percent from its high just above $20,000. The total
value of all virtual coins is now about $121 billion,
down from about $830 billion at the start of the
year. That has not stopped the hype machine humming.

REGULATORY GRAY AREA

So-called “influencer marketing” is common on
social media, where celebrities and others tout
anything from shoes to cars. Also common in these
plugs is a lack of disclosure, which may mean the
buyer is unaware of a conflict of interest. When it
comes to cryptocurrencies however, stricter rules
may apply.
In July 2017, the U.S. Securities and Exchange
Commission (SEC) published a report on its
investigation into digital currencies and warned
participants in the market that “virtual coins or
tokens may be securities and subject to the federal
securities laws.”
The SEC issued a more specific warning about
promotion of online fundraisers known as initial
coin offerings (ICOs) on Nov. 1 last year. “Any
celebrity or other individual who promotes a
virtual token or coin that is a security must
disclose the nature, scope, and amount of
compensation received in exchange for the
promotion,” the SEC said in a public statement
posted on its website.
Failure to do so is a violation of anti-touting
provisions of federal securities laws, and may also
be fraud, the SEC said.

The SEC has not issued determinations on which
cryptocurrencies it regards as securities. But the
agency has brought enforcement actions against a
dozen or so companies connected to ICOs, some of
which the agency has identified as unregistered
securities offerings, and therefore subject to its
regulation.

The SEC has not targeted outside promoters of
currency offerings. Its warning in November of
2017 - near the height of the crypto frenzy - alone
has led to a “dramatic decline” in celebrity
endorsements of ICOs, the SEC’s co-director of
enforcement, Stephanie Avakian, said in
September. The SEC declined comment to Reuters
for this story.

Nevertheless, hundreds of self-styled
cryptocurrency experts have emerged over the
past 18 months, and their activity has declined
only slightly. There are now more than 2,000
cryptocurrencies vying for attention, all promising
riches to investors. The vacuum of hard facts on
new currencies has left investors vulnerable to
hype and bad advice.

“The main reason why so many inexperienced
individuals invest in bad crypto projects is because
they listen to advice from a so-called expert,” said
Larry Cermak, head of analysis at cryptocurrency
research and news website The Block.
Cermak said he does not own any cryptocurrencies and has
never promoted any. “They believe they can take
this advice at face value even though it is often
fraudulent, intentionally misleading or conflicted.”

EXPERT’ REVIEWS

ICObench is one of the most popular websites
listing and rating ICOs. Its pages are among the
top hits in any Google search for a specific crypto
project and the word ICO, making it a key site for
currency operators to appear on.
Ratings on the roughly 15-month-old website are
generated by unpaid “experts” who passed the
website’s background check process, ICObench
chief executive Maxim Sharatsky told Reuters.
As of Nov. 14, ICObench had 361 experts whose
ratings are overseen by the site’s 34 employees
based in Moscow, London and across Asia, he
said. ICObench had 1.7 million visits to its website
between mid-October and mid-November,
Sharatsky told Reuters.
The website itself makes money through
advertising and a premium model which lets
cryptocurrency companies pay between 1 and 40
bitcoin to be featured in newsletters, at the top of
search results and elsewhere.
Seven ICObench experts told Reuters they have
been approached by cryptocurrency companies or
their public relations agents and offered money in
exchange for a rating, although none said they
accepted any such offers.
Tim Glaus, a co-founder of Alethena, a Swiss-
based startup, told Reuters his firm was
approached by multiple individuals who said they
could arrange paid-for ratings from ICObench
experts after Alethena listed its coin offering on
ICObench. Markus Hartmann, another of
Alethena’s co-founders, wrote about the
experience on the blog Medium in June, in what
he said was an effort to expose “de facto investor
fraud.” Alethena runs a cryptocurrency ratings
platform that competes in some areas with
ICObench.

Sharatsky told Reuters that ICObench does not sell
ratings. When ICObench is informed that experts
may have been paid for ratings, he said, it
investigates and takes the reviews down if they
are tainted.
“We have more than 16,000 ratings on our
platform,” Sharatsky said. “Unfortunately, we
have (had) accidents with sales (of) ratings, and
it’s very bad. It’s a problem for me, for our
platform and for all interested.”

FIVE-STAR REVIEWS

Hartmann was contacted in late May on the
encrypted Telegram messaging app from a user
with the handle “Vagiz,” who offered to get
Alethena five-star ratings on ICObench for $500
each, taking a 10 percent cut, according to
Telegram messages Alethena showed to Reuters.
He negotiated to pay $800 for two ICObench
reviews and asked for the service to be delivered
as quickly as possible, according to the messages.
Less than 30 minutes later Vagiz messaged
Hartmann on Telegram: “Done. There are two 5*
”

Vagiz was referring to two five-star ratings from
ICObench experts Daniil Morozov and Anatoly
Bordyugov, according to Alethena. These were the
only new five-star ratings that appeared after
Vagiz messaged that he was done, leading Alethena
to believe those were the reviews that had been
arranged, Glaus said.
Alethena said it paid Vagiz 1.16 ether - another
cryptocurrency - for the service, worth about the
agreed price at the time. Alethena sent Reuters
screenshots of the reviews which have been
removed.
A few days later Hartmann paid Vagiz an
additional 0.56 ether for a third rating from a
reviewer named Jason Hung, according to the
messages. “1 rate is done. Hung is from me,” Vagiz
wrote, providing screenshots of Hung’s ratings.
Morozov, the ICObench expert, told Reuters he did
not take payment for the rating and did not know
Vagiz. Bordyugov, the other ICObench expert, did
not respond to requests for comment made
through his website and sent on LinkedIn. Hung,
whose rating still appears on ICObench, also told
Reuters he did not take payment for the rating on
Alethena and said he did not know Vagiz.
ICObench CEO Sharatsky told Reuters that after
Hartmann wrote about his experiences on
Medium, he and his staff investigated Alethena’s
claims against Morozov and Bordyugov and found
that both reviewers did accept money for positive
ratings. As a result, ICObench stripped Morozov
and Bordyugov of their expert status and took all
of their ratings off the site, Sharatsky said. He said
the investigation found no proof that Hung’s
rating was paid for.

WALL STREET-STYLE RESEARCH

As cryptocurrencies move into the mainstream,
some companies have started offering research in
formats mimicking the style of traditional Wall
Street firms.
Spero Research, based in Sydney, Australia,
publishes reports on cryptocurrency projects
which are “very impartial” and “very
independent,” according to Henry Sit, one of
Spero’s co-founders. He compares the reviews to
those written by traditional stock analysts.
Nevertheless, the research is commissioned and
paid for directly by the projects that are being
reviewed, Sit told Reuters. The company accepts
payments in ether but will also accept half of the
total fee in the project’s currency, depending on
“how good the project (is) and how much we like
it personally,” Sit said. “There is definitely a
conflict there,” he acknowledged. He added that
Spero would not change its opinion just because
the cryptocurrency project that has been reviewed
disagrees with Spero’s conclusions.
Spero’s reports do have general disclosures. But
they are not specific about whether a payment was
made by the client whose project is being assessed,
and if so, how much.
“Spero may be paid to publish research reports -
depending on the circumstances, this may be from
clients of Spero on the buy-side, or from providers
of assets and currencies on the sell-side,” said the
disclosure on a cryptocurrency report published in
August. “Spero members may hold cryptocurrency
that are the subject of research and publication.”
Sit would not say which of Spero’s reports had
been financed by their subjects.
Some investors cry foul at such quid-pro-quo
research. “Paid reviews should not only be
disclosed, they should be outlawed,” said Ric
Edelman, head of the wealth management firm
Edelman Financial Services and an investor in
bitcoin and ether. “Until they’re outlawed, the
disclosure should be as prominent as the
headline.”

PROFESSIONAL COPYWRITERS

An array of “ICO agencies” has sprung up, as well.
These promoters offer crypto issuers active
followers and posts on social media platforms
such as Telegram, Reddit and Bitcointalk. Online
chatter can attract investors, given the lack of
conventional financial information available on
cryptocurrencies.
Reuters contacted one such agency, TGE.company,
to inquire about the services advertised on its
website. An email received in response to the
inquiry directed Reuters to a Telegram messaging
account under the name of “Papa Karlo.” That
user sent a Reuters a price list which said the
agency could arrange to provide 630 comments in
a Telegram group at a rate of 45 comments a day
for $800, payable in the digital currency tether.
Reuters was not able to confirm the identity of
Papa Karlo. The services he offered were in line
with a price list on the firm’s website, under the
words: “We create hype through complex solutions
which increase community activity.”
“All messages will be relevant to the project and
written by professional copywriters with extensive
experience in ICO,” according to the price list Papa
Karlo shared with Reuters. The list offered
comments from “dozens of high-level” accounts
on Bitcointalk, as well as posts on Reddit, at prices
ranging from $950 to $2,900.
Reddit told Reuters its policies prohibit users from
engaging in manipulation or creating multiple
accounts to avoid restrictions, and any users
detected breaking those policies are “actioned
appropriately.” Telegram and Bitcointalk did not
respond to Reuters’ requests for comment.
Richard Foster, the UK-based co-founder of
cryptocurrency startup Security Token Network,
said that in September he paid an individual $50
on the freelancer network Fiverr to help grow his
company’s Telegram followership. The seller,
going by the handle “heroic_anthony,” assured
Foster that the users would not be fake, according
to messages seen by Reuters.
“And then within one minute there were like 1,000
people added,” Foster told Reuters. “I went mad.”
Foster said he complained to Fiverr and had the
freelancer delete all the fake followers. Fiverr
refunded Foster’s money and told him it would
investigate the user, according to an email seen by
Reuters.
“The circumstances you’ve described violate our
terms of service,” Sam Katzen, a spokesman for
Fiverr, told Reuters. “When violations are
reported, we take swift action to investigate and
handle the situation appropriately.” Katzen
declined to disclose whether “heroic_anthony” had
been banned from the site, or what exact terms of
service had been violated. Fiverr’s terms of
service, posted on its website, forbid the sale of
“illegal or fraudulent services.”

PAY FOR ARTICLES

Another service on offer from ICO agencies is
paying writers to publish stories mentioning their
clients, or linking back to their clients’ websites,
according to interviews with four agencies and six
email offers seen by Reuters. Prices range from as
little as $100 to as much $10,000, according to
interviews and messages.
A cryptocurrency data company showed Reuters
an email it had received from an individual
offering an article on business website Forbes.com
for $2,500. The post, which would feature a
company’s name and website, could be delivered
in six to eight weeks, the email promised. The
email included a coupon for a $500 discount.
Forbes.com said in a written statement to Reuters
that its editorial guidelines explicitly forbid
contributors from receiving payments in exchange
for stories. Forbes did not share its editorial
guidelines with Reuters.
Earlier this month, Forbes
removed a post under the
byline of Harold Stark,
originally published late
last year, which referenced
a cryptocurrency issuer,
after Reuters inquired
about it. In a statement to
Reuters this month, Forbes
said it had discovered in
early 2018 that Stark
violated its editorial guidelines. It is not clear if
Stark accepted payments for his Forbes post. Stark
did not respond to a request for comment on
LinkedIn.

“We terminated our relationship with him and
removed all of his content from our site at that
time,” the statement said. “Due to a technical
glitch, his prior content reappeared, but we have
removed the content once again.”

Source: https://www.reuters.com