It’s no secret that ‘pump and dump” schemes have been around in years.
Historically, this used to happen a lot with penny stocks before the SEC shut down such activities to protect the public.
Nowadays, these schemes are becoming prevalent in the initial coin offering industry, some by unscrupulous companies offering ICO services.
Some promotion companies offer to take your company public via an ICO for no money up front, and their “payment” is receiving as much as 50% of the coin when the company goes public.
Here’s the play.
Your company solicits investors that spend money to purchase your newly created coin/token at a discount in the early stages of their initial coin offering.
The ICO promotion company uses their influencers to generate a lot of discussions online through various apps and online forums to promote their client.
Unlike reputable companies that get money up front to cover expenses, plus a small percentage of the coin as compensation for a majority of the promotion company’s profit, the ICO questionable promotion company promptly dumps their coin to recoup their costs and profit as quickly as possible, as soon as the initial coin offering goes public.
Since their only compensation is the newly created coin, the questionable company quickly depress the price of the coin where it becomes virtually worthless. They make their quick buck, and then they move on to the next company to promote.
Individual investors with promises of high returns are demoralized as they see their investment evaporate.
Your investors that purchased your Pre-ICO directly from the company are upset when they discover that their investment is may now be worth pennies on the dollar.
Can you attempt to negotiate a contract that the ICO promotion company only sells their 50% coin allotment in stages? It’s possible.
However, your only recourse could be legal action, if they don’t honor the agreement.
Depending on where they are located, it may be challenging to serve the ICO promotion company and win a judgment.
In the meantime, investors lose their money, and your company reputation is tarnished forever.
A company only has one shot at a first impression when they first go public.
There is a famous British saying, “penny wise, pound foolish.”
Regarding an ICO, companies who cut corners on small costs sometimes paid dearly concerning lost investment and reputation in the long run.
While not all ICO companies with this type of enticing offer are automatically unscrupulous, it should make a savvy business owner think twice about the potential consequences of these kinds of arraignments.
Always remember, “If it sounds too good to be true, it usually is.”