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Punishing Cryptocurrency Scams and Pump and Dump Groups: A Game Theoretical Analysis

The Rise and Rise of the ICO Scammer

Reading Time: 4 minutes by on July 10, 2018 Crime, ICO/IEO, News
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This was originally published by IC Sherlock on his medium blog. He gave us permission to share this with you. It does not express our views or opinions.

The 20th century certainly was full of scammers. One would think that by the 21st century we would be far more adept at preventing and catching these scam artists. While the 20th century gave us notable scammers such as the Keating Five and Bernie Madoff, the 21st century has given rise to a new type of scammer.

Mark Karpeles is famous for ‘losing’ more than 200,000 bitcoins from Mt. Gox. Investors have lost bitcoins that are now worth billions of dollars due to his incompetence. The question remains, is he really that incompetent or was it all a scam?

The modern day scam isn’t one that relies upon an intelligent set of actions. We are led by Hollywood to believe that successful criminals are as skillful as the group on Oceans 11 or Catch me if you can. However, the successful criminal scam artist of today follows a two step blueprint to steal the investor’s money.

  • Appear to be a competent, successful and intelligent entrepreneur that is embarking on a new business model.
  • Do something incredibly stupid to ‘lose’ all of the investors’ money.

Step 1: The Rise of Pavel Kuznetsov, genius scientist crypto miner scam artist.

The Rise and Rise of the ICO Scammer
Pavel Kuznetsov, modern day ICO scam artist

On September 27, 2017 Pavel uploaded a YouTube video detailing his modern day CryptoCurrency mining operation. He simultaneously released a website, an announcement on the popular BitCoinTalk website, a telegram channel and was seen on Facebook, Twitter, Reddit and Instagram. Every channel was fully staffed by moderators. Every question that an investor had was answered by the paid staff members of each channel. Pavel hosted live investor calls that were streamed on Google Hangouts and on YouTube. These calls were both in Russian and in English (with a translator). Everything that Pavel did was designed to give an air of legitimacy to the Terraminer project.

The Terraminer Coin was also designed well so that it would appeal to crypto investors. As seen from the Terraminer Coin (TRM) whitepaper, the coin was to payout to investors the mining rewards that his mining farm would generate. The mine was to be based in China where power and labor costs were cheaper. It was also to be positioned near the manufacturer so that delivery times would be lessened and technical support would be readily available. There were dozens of pictures and videos included on the website and in the Telegram channel that also provided an air of success to the company.

The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
Terraminer ICO Publicity Images

Pavel directed his staff to persuade investors to purchase his Terraminer coins through his website. The first Terraminer coin (TRM1) was generating daily revenues from the mining operations as proven by the blockchain transactions. The transaction history for the blockchain shows daily payments to TRM1 holders in accordance to what Pavel said that he would do. A proportional set of payments to TRM1 holders for mining done by the TRM1 mine.

The Rise and Rise of the ICO Scammer
Payments in Ethereum to TRM1 holders

Driven by the ‘success’ of the TRM1 campaign, Pavel then embarked on a much larger TRM2 scheme. Pavel used the money from both TRM1 and TRM2 to advertise and market the ICO in various conferences and shows.

The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
Media Blitz for Terraminer

Step 2: The Fall of Pavel Kuznetsov, genius scientist crypto miner scam artist.

As we know, all ponzi schemes must come to an end. After all, spending $100,000 a month of investor’s money on booze, airfare and parties is not sustainable especially considering that during this same time, the price of bitcoin and ethereum have been falling leading investors to reduce their investments in crypto projects.

The Rise and Rise of the ICO Scammer
The Rise and Fall of Ethereum seems to follow the Rise and Fall of Terraminer

The first sign of trouble came around April when the support staff suddenly left all the channels for Terraminer. This is right when the ICO of Terraminer ended and investors were supposed to begin receiving their return on investment. Multiple attempts to reach any of the support staff were met with silence.

Here’s where the second part of Pavel’s scheme comes into play. He claims that all of the investors money was spent on miners that then fried due to faulty power in China. So this is the reason that the second TRM mine never comes online. An electrician that is an investor said that even the most incompetent electrician would never wire things this way.

The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
“Smoke and Mirrors”

The first TRM mine comes to an end in June because Pavel claims that the power costs are too high. Pavel released this video on YouTube explaining his decisions while refusing to take any questions from concerned investors.

A transcript done by automatic translation software can be found here.

As an offer, he is ‘selling’ Monopoly tokens at a ‘high’ price to any TRM1 or TRM2 investor willing to invest those tokens into his latest scam coin:

The Rise and Rise of the ICO Scammer

So if the latest ‘Monopoly’ scam is to be believed, here is what he is claiming:

  • He is a successful TRM1 and TRM2 businessman.
  • He is paying all TRM1 and TRM2 investors.
  • He is building on this success with his latest Monopoly coin
  • He is raising more money so that he and his investors can be even more successful

In fact, he is a total failure.

  • He is a failed TRM1 and TRM2 businessman
  • The blockchain shows that no payments are being made. His own videos show that he can’t mine because it is ‘unprofitable’.
  • He is attempting to scam even more people with the Monopoly coin.
  • He is raising money so that he can be a successful scammer.

Step 3: The rise of international action against scam artists like Pavel

As Pavel is a resident of Moscow, he falls under the review of the criminal system of the Prosecutor General’s office in Moscow, Russia. A group of concerned investors have been lobbying the offices in Moscow to open a large scale investigation into Pavel Kutznetsov and Ilya Ratnikov.

The Rise and Rise of the ICO Scammer
A former admin Vincent speaks out

And given that he has a criminal history, the Prosecutor General’s office needs to take this matter seriously to assist in the recovery of the more than $2 million dollars that Pavel has stole from his victims.

The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
The Rise and Rise of the ICO Scammer
Pavel is a career criminal

One victim is the manager of an orphanage. Pavel was well aware that the money that he was taking was from orphans. He took it anyway.

The Rise and Rise of the ICO Scammer
Pavel Kutznetsov, modern day scamer

I.C. Sherlock is on the case

Over the upcoming days, I.C. Sherlock will be investigating Pavel, Ilya and all of their associates to find out who they really are. Also, I will be working closely with criminal prosecutors all over the world and aid in their investigation into Pavel’s criminal enterprise.

If you have any tips, post them to my Telegram channel.

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