QED

Anatomy of a Scam

My friend, Arthur, is far from stupid, yet he was seduced into parting with his hard-earned cash by slick and accomplished  online con artists. In his case the monetary loss was small even if the resulting inconvenience was not. let his experience be a lesson to all

This is a true story. It was brought to me by a friend who wishes to remain anonymous, not from shame but because his name would add nothing, but might divert attention from the fraud itself.

scamShark Tank is a popular and highly successful television programme that has been aired on Channel 10 since February, 2015. Its theme is simple – various aspiring entrepreneurs present their business propositions to a group of successful businesspeople who may (but usually don’t) back an idea or product with their own cash. The five ‘shark’ investors on the last panel were: Steve Baxter (Brisbane internet pioneer); Janine Allis (Boost Juice founder); Andrew Banks (Talent2 recruiter); Naomi Simson (Red Balloon experiences) and Dr. Glen Richards (Greencross pet care). Shark Tank Australia is modelled on a programme of the same name that is now in its tenth season in America on the ABC network. Its public appeal has led to its re-broadcast on BBC Worldwide, UKTV and Bell Media. It, in turn, was derived from the Japanese programme The Tigers of Money which spawned local versions in thirty countries, often under the title Dragon’s Den.

Quite by accident my friend (let’s call him Arthur) came upon a news website previously unknown to him and saw the headline: “The Biggest Deal in Shark Tank History, That Can Make YOU Rich in Just 7 days! (seriously)”  That it carried that day’s date added to the appearance of authenticity.

The story explained that two young graduates from the Queensland University of Technology had developed an automated investment trading platform that would allow an ordinary investor to benefit from the ability to arbitrage between volatile and often rapidly changing bitcoin prices without having to buy the cryptocurrency. They called it ‘Bitcoin Trader’. An algorithm based on data and machine learning would issue ‘buy’ orders when the price fell and ‘sell’ orders when it rose, also taking advantage of short selling opportunities. There was nothing revolutionary about the idea – it appeared to him to be similar to the program trading systems widely used by institutional investors, hedge fund managers or mutual fund managers to execute large volume trades on stock markets. The only new angle was that it was applied to bitcoin trading.

The pitch said to have been put to the Sharks in the TV programme sought an investment of $200,000 for 25% of the company, valuing the business at $800,000. The initial skepticism at the idea of getting rich quickly was dispelled (the story said) when one of the panel, Janine Allis, was induced to try the trading platform on air, there and then. To her amazement, her initial investment of $250 rose to $323.18, a profit of $73.18 – in three minutes!

What then ensued (according to the report) was a frantic bidding war between competing investors. Said Steve Baxter (purportedly): “Bitcoin is so hot right now and if even somebody like Janine, no offence Janine, can make money from it, I’m all in. I need to have a piece of this. I’m going to make a huge offer, $2 million for 25% of the company.”

At this point, Janine was said to have interrupted to observe that her trading account had gone up again – to a profit of $148.42, all in eight minutes. Glen Richards then bid $2.5 million for 25%, upon which Baxter came back with the winning bid of $2.5 million for 20% of the company. This valued it at $12.5 million. The deal was celebrated as the biggest in the history of the Shark Tank.

The (unnamed) author of the article reported that on the basis of the demonstration, he had opened a Bitcoin Trader account. Results weren’t as spectacular; the platform took 20 hours to generate a profit of $80.19, but after five days, with no effort, the account had generated $630, after seven days, $1930, after fifteen days, $7,300.59. He then withdrew his money to pay for an overseas holiday.

The article had embedded links to Bitcoin Trader, so my friend Arthur had hit the button.

His computer immediately flashed up with a log-in page from an organisation describing itself as Bitcoin Code, asking for a name and e-mail address. (In the trade, that’s know as the ‘landing site’ where the victim first arrives). When his details were entered, a new page presented as the Private Members Area, and required full name, phone number and a password.  My friend hadn’t noticed, but when I replicated his steps, I found at the bottom of that page a seriously professional-looking Trading  History document as an example. Strangely all the trades were merely put and call option trades on shares, currencies or commodities. Nothing on Bitcoin. The trading account had either been imaginatively constructed, or more likely copied/stolen from real trading records.

What followed dazzled my friend and kept him artfully and deliberately off-balance. A flood of emails arrived congratulating him, giving him an account number, and offering the choice of two trading platforms – Meta Trader 4 or WEBTRADER, neither of which he understood. Then the phone rang. It was helpful “Damien” with an American/Hispanic accent eho had called to guide him in activating his account and depositing his initial investment. He was kept busy at his computer, following the phone instructions. He noticed that he was now on a website named FTO, Financials Trading Online at an internet address https://www.ftocapital.com/.

From a side menu, he was asked first to select ‘Withdraw Funds’ and shown how he would extract his profits by nominating his bank account (he was not asked for his banking details at that point). Then he needed to go to a box where his account number was already entered, and hit the ‘Deposit’ button. The minimum amount accepted was US$200, so he entered that and debited his credit card. He had also been offered the choice to pay via a World Clearing Voucher.

I have since found that Worldclearing Limited is a UK company whose website offers a global centralised payments service, principally for merchants. It also sells vouchers in six currencies to anyone in Europe for electronic payments. A search of the UK Companies House records shows the company was incorporated in 2012 as a £1 company, but after three changes of address, and one name change, was not capitalised and operating until a year ago. Its voucher option as a payments method seems to have been included to give the FTO site the appearance of a reputable banking-type organisation.

I know Arthur as a shrewd investor and a natural sceptic. So why did he put A$250 into a get-rich-quick scheme? “This was nothing like a Nigerian scam. My guard was let down by the story, the apparent endorsement by well-known identities who had authenticated it in public with their own investment,” he said. The idea of risking a relatively small sum to test out a trading algorithm interested him. He was prepared to lose that amount as an investment; he was not expecting to have it stolen as a fraud. That, of course, was the cleverness of the psychology of the scam.

After being “assisted” to set up his account and make his initial deposit, Damien rang off, saying that someone from the investment division would call him to explain how to start trading. At this point, Arthur became suspicious and looked a little more closely at the website. For those who hadn’t woken up, there was a further hook, and a greater risk ahead. The website informed him that he was on a 15-day “free” trial period; to continue trading, he would in due course be required to supply full bank-like identification – passport,  driving licence, address, rate notice, the whole 100-point authentication of a legitimate financial institution. He realised then how others could have been skimmed of far more than their initial “investment.”

A quick check with his bank statements online showed that $260.47 had already been debited to his credit card account, but was still marked “pending.” The payment was to yet another group, EMEXGO.com. Urgent action was needed if this payment was to be stopped. Arthur’s bank was sympathetic. It cancelled his and his wife’s credit card to prevent further theft and set in course a process of challenge to the charge. A dispute was declared, which may take up to 45 days to resolve, but it is by no means certain that the credit card charge can be reversed. Meanwhile Arthur has had to resort to cash for payments until new cards are issued by his bank, a slight irritation but which has left his wife free to rib him for his foolishness.

When Arthur came to me, sheepishly, my first step was to check on the identities of the various parties to this scam. I first tried Scamadviser.com which produced impressive-looking reports on FTOCapital; BitcoinCode; BitcoinTrader; EMEXGO and yoursecuretrade.com. Their owner locations were dotted around the world, from Queensland to Glasgow, but in almost every case there was a warning that the site was using an anonymous service to hide the owner’s identity.

Having established a trail of fake or fraudulent sites and organisations, the most pressing problem was to find why reputable Australian businesspeople had so enthusiastically endorsed Bitcoin Trader on Shark Tank.

As Occam’s Razor predicts, the simplest reason is probably the right answer – they didn’t. The entire story of the Bitcoin Trader presentation, the magical profits, the Sharks’ bidding war never happened. The entire story was a concoction, written expertly to appear as a genuine news story, with the automatically altering dateline at the top to add reassurance.

Furthermore, Shark Tank emerged as a principal inspiration for scams in the USA. It has proved only too easy for the unscrupulous to claim that products had been featured, or even backed, on the popular programme. Over the years, ‘miracle’ hair growth products for balding women, vitamin supplements, weight loss products, libido enhancers and muscle-building supplements have all been touted. Last November, the U.S. Federal Trade Commission obtained a $179 million judgement against a group that was purveying all those false promises.

One of the US Shark Tank’s leading panel members, Barbara Corcoran, described more or less accurately as a billionaire real estate mogul, found her name and photograph had been used to promote a skin care creme as having been a winner on the programme. Offered as a ‘free trial’ for $4.95, it hooked responders, then sent them shipments of unasked-for potions, sometimes amounting to hundreds of dollars. Corcoran had the means to track down the scammers to San Diego and sue them for defamation.

Mark Cuban, multi-billionaire owner of the Dallas Mavericks basketball team and one of the Sharks, estimated in one interview that one-third of the entrepreneurial contestants he sees on the show are scam artists. He has vowed to name and shame those he identifies. The Shark Tank programme was itself scammed. One contestant took the investor’s money and disappeared.

When I reported my investigations back to Arthur he was astonished, but chastened by the scale of the international fraud to which he had fallen victim. In its sophistication and complexity, internet scamming is now one of the biggest entrepreneurial enterprises in the U.S. And it all depends on human nature and venal greed.

And yet the story will not die. AAP has just reported that another version showed up on Twitter last week, and this week an advertisement appeared on the front page of the Brisbane Times website, owned by Fairfax Media. It was removed soon after as illegitimate. A spokesman for Channel Ten, which airs Shark Tank, described the advertisement as completely false and misleading.

Scamwatch, maintained by the ACCC received 1289 bitcoin–related scam reports in 2017, with reported losses of more than $1.2 million.

The last word comes in a Tweet from Steve Baxter which was retweeted by Janine Allis:

SCAM ALERT. None of us invested nor endorse. Thanks to those sending it to us. Please retweet as much as you can if possible. The people running the scam are lower than snakes’ bums.”

Geoffrey Luck was an ABC journalist for 26 years

5 comments
  • whitelaughter

    The slime are creative. The most interesting scam I’ve faced recently began by claiming to be *investigating* a scam – said there was a purchase from my account that looked suspicious, had I made it; obviously I had not, so scammer promptly ‘cancelled it’ and then started asking questions about previous purchases to make sure they were all legit…and collecting info from me about my account. Fortunately realised what was going on when they started asking for account details that they should have had. A very meta way to get you to open up!

    • Lewis P Buckingham

      The same thing happened to a friend of mine.
      She was rung and told it was Scamwatch and they were concerned she had been scammed, and ended with them wanting credit card details
      to make sure it did not happen again to her credit card.
      The best I have received is a non payment of a parking fine texted to me, with a pay up or jail.
      The problem was I had not been fined,how can one be sure?
      I usually report any scam at https://www.scamwatch.gov.au/report-a-scam
      Recently a company called ‘BlueSky’ billed my credit card on a day I was working,so not using my card.
      It may be legitimate, but I have queried it, just a small amount.
      Has anyone had a similar experience?

  • Ian Matthews

    Someone once said, “There are no victims, only volunteers.”.

    • whitelaughter

      That’s just something they tell themselves to justify their crimes, along with the ‘you can’t con an honest man’. Not true; that the old and vulnerable are their preferred targets, rather than the greedy, shows that.

  • Adellad

    This is salutary sure, but really, upon seeing “The Biggest Deal in Shark Tank History, That Can Make YOU Rich in Just 7 days! (seriously)” anybody with a modicum of wit ought to end it all right there.

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