Scams keep haunting crypto market, aided by AI, social media: Report
When Jakob-Moritz Eberl clicked on a link to the website of a crypto company, he was stunned at what he saw: his own face looking back at him.
Eberl’s headshot was displayed under the name “Mason Jones” and the title “Senior Blockchain Engineer” as one of six men the site claimed were on the team behind InfinityStakeChain. A near-duplicate website for a platform called FlexyStakes used the same photos above different names, identifying Eberl as “Noel Brennan.” Eberl, a social scientist at the University of Vienna who doesn’t even own any crypto, had no idea why his picture was on the sites.
“I’m not associated with crypto,” he said in an interview. “I’m not following crypto. I have to honestly say I still don’t understand crypto fully.”
When former FTX Chief Executive Officer Sam Bankman-Fried went to prison following his conviction on fraud charges earlier this year, many in the crypto industry breathed a sigh of relief that the industry could turn the page following years of scandal. Yet scams continue to haunt the asset class, and there are signs they have picked up again amid this year’s rebound in the market.
Both InfinityStakeChain and FlexyStakes issued press releases that were published on wire services, local news sites and Yahoo! Finance claiming that they had raised $12 million from investors led by Binance, the world’s largest crypto exchange. On their websites, they also claim partnerships with other big names in the industry, including Polygon, Avalanche, dydx and Fantom. Binance and the others each confirmed to Bloomberg that they had never worked with either of these startups.
In a sector where VC activity is closely watched by traders hunting for signals about which tokens to buy, an investment from big names like Andreessen Horowitz or Dragonfly could inspire traders to snap up a new project’s token and boost its price. With Bitcoin and other tokens surging upward this year and VC funding rebounding, the risk is high for both retail and institutional investors looking to take advantage of the market’s resurgence.
“It’s fraud, especially if you’re putting up these websites,” said PitchBook crypto analyst Robert Le, who identified InfinityStakeChain and FlexyStakes among a group of crypto startups peddling false information about fundraising.
Inquiries to the two projects from Bloomberg went unanswered. InfinityStakeChain and FlexyStakes both used the same promotional language and listed the same partners on their websites, though InfinityStakeChain’s site became inactive in the past month. They even claimed the same office address at a quiet commercial property in Melbourne, Australia.
The six-level office building is home to an empty first floor full of abandoned desks, some shipping companies, a medical center and a construction office, but there’s no sign of FlexyStakes or InfinityStakeChain. A receptionist for one of the building’s tenants said that, to her knowledge, no company with either of those names had rented space there in the past two years. The building’s manager, Colliers International Group, did not reply to an email seeking further confirmation.
It’s unknown what the motives are for FlexyStakes and InfinityStakeChain. Le said PitchBook, which tracks venture-capital data, has seen an increase in fraudulent activity in the digital-asset space recently and some projects are simply blatant scams whose fake fundraising announcements could lure unsuspecting victims to a malicious site.
‘Almost on a daily basis’
“All they want to do is get you to come to the website, connect your wallet to use the thing, and they steal all your funds,” he said. “We see so many fake projects that fundraise and they’ll put out fake press releases. I see it almost on a daily basis.”
Scams can appear alarmingly fast. Just a few hours after Tether Holdings Ltd. announced a new synthetic dollar token on Monday, the company’s CEO Paolo Ardoino posted on X that it “seems there are already multiple websites trying to impersonate our new product Alloy by Tether. Don’t fall for it.”
When it comes to InfinityStakeChain and FlexyStakes, Eberl wasn’t the only one whose headshot was misappropriated. He also recognized two other faces, including the purported founder of both companies. Eberl studies communication and misinformation around politics and health, and lately he’s focused on public reactions to Covid-19 policies in Austria. He recognized the pair from the X social-media platform since they had both posted about Covid policies in Austria. Both individuals confirmed to Bloomberg that they also were not involved with the crypto startups. The other three individuals whose photos were featured on the websites also confirmed to Bloomberg that they were in no way connected to either project.
For Eberl, the incident was disturbing, even though he’s used to fielding hateful comments and online harassment over his research. His wife recently watched the Netflix documentary Bitconned and he was concerned about being targeted by a crypto scam. He was even fearful that an inquiry from Bloomberg, which included a Zoom link for a videoconference interview, was part of some ploy. So he asked if he could send the meeting invitation from his own account in order to make sure he didn’t click on a malicious link.
Most of all, he was also worried about being connected to something potentially fraudulent that could harm his reputation and hurt unsuspecting victims.
“I have no idea how I deserved this,” Eberl said.
Another case of crypto-VC misinformation was on display recently with a company called Candle Labs. Multiple data and news platforms including Crunchbase, PitchBook and Silicon Valley Journals incorrectly reported that the company had raised $48 million in a Series B, or later-stage, venture funding round. Sam Safahi, 21, founded the crypto startup in 2022 alongside some friends and his father, Alan Safahi. The elder Safahi, who had previously served on the board of Ripple Labs, is now serving a 40-month sentence in federal prison for fraud and money-laundering convictions related to a $2.7 million prepaid debit card scam.
Whether the incorrect data about Candle Labs’ $48 million was purposefully or mistakenly provided to these data platforms doesn’t change the fact that the misinformation has lingered. The company eventually shut down last year after it received a letter from the US Securities and Exchange Commission implying that its CNDL token was an unregistered security, according to Safahi.
Mysterious fundraising news
“When my father gets out of prison, we were planning on eventually working with the SEC to restart it, to make it work,” he said.
Silicon Valley Journals said in an email to Bloomberg that it had gotten the information from Crunchbase and subsequently updated the article on Candle Labs’ fundraise to include an attribution to Crunchbase. Crunchbase has an article referencing a $48 million fundraise, as well as a $1,000 fundraise listed on the company’s data page. The Candle Labs data page also had a line that read: “This is a fraudulent startup – if you receive a recruitment offer from these guys ignore it.”
Representatives of Crunchbase declined to be interviewed for this story. Following Bloomberg’s inquiry, it removed the…
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