
Anatomy of a Scam - cocoflunchy
https://jacquesmattheij.com/anatomy-of-a-scam/
======
nullc
A couple years ago I had the privileged of getting to overhear an adjacent
table where a scam cryptocurrency founder was pitching their ICO to an
investor in a restaurant in mountain view. At the time I hadn't even heard of
it but it went on to raise a lot of money then end up mired in legal trouble.

The central premise of the pitch was to repeadily go over how Bitcoin market
price had changed from 2009 to whenever it was (probably around $3000 at the
time), and then suggest that their new asset would experience even greater
increases even faster because <jargon>. Paraphrasing: "So if I invest $1m
today, in seven years...?" "Your investment be worth 100 billion! maybe more,
but I can't promise that. 100,000x growth is the _minimum_ but the maximum is
anyone's guess". They looped over and over again, I think with the prospective
investor making extra sure he understood before writing the guy he was talking
to off as a scammer.

At that point I stopped worrying about the particular pitchee was going to get
scammed, it was too absurd. (I'm sure my numbers aren't exactly right, for one
they had a bunch of excess precision in reality, presumably based on the day's
Bitcoin price, but whatever it was was totally absurd).

> or even a VC that is not tech savvy

Honestly, I think being "tech savvy" is a liability. Someone who doesn't think
they're tech savvy knows they don't know. It takes a certain level of
expertise to talk yourself into something extremely dumb. They might not fall
for this particular pitch deck (or the one I overheard), but there are scams
for every skill level. And the more confident you are in your understanding,
the larger the "investment" you will being willing to make.

~~~
Bartweiss
I think at some level expertise does become a robust defense against scams;
it's just that the level required is incredibly high. Scamming Cynthia Dwork
or Wei Dai with a new cryptocurrency would presumably be a waste of effort,
because they'd jump straight at that <jargon> bit and even a very good con
artist wouldn't keep up. Likewise, top physicists, cryptographers, and
mathematicians hear from a lot of cranks without ever getting taken in. (Or, I
suppose, they're too embarrassed to admit it.)

But most people aren't at that level of expertise, and no one is that good at
everything. If you're an expert at one thing, you're bound to be merely
informed on a bunch of topics at the periphery of that thing. And "tech savvy"
more or less means "informed by not an expert", so I think you're exactly
right - that, more than cluelessness, is where danger lies. As we gain
knowledge, we rely more on our own expertise than on consensus wisdom. And
that's often right for spotting bad ideas, but it doesn't work for spotting
scams. If someone is trying to hide the flaws where your knowledge is lacking,
learning twice as much gives you far less than twice the resilience.

I _definitely_ can't identify the next bit thing in gene therapy or concrete
additives, so there's no point in even trying to pitch me. I'd turn down the
real deal and not regret it later, because I have no chance of getting it
right. But I first heard about Bitcoin in 2011, so it's not quite unimaginable
that I'll get a shot at the next one also. And a "not quite unimaginable" shot
at riches is pretty much what scammers live off of.

~~~
nullc
I think the only thing that might protect Cynthia Dwork or Wei Dai would be if
they were wise enough to not believe they were immune to being scammed.

Yes, the person I was talking about wouldn't be successful against a more
sophisticated target. But there is no amount of technical sophistication that
makes you immune against the right scam because even the most technically
adept has finite time to consider things, and they're all still human.

Your excellent point about "learning twice as much gives you far less than
twice the resilience" means that essentially no one can be completely immune,
once you factor in time.

So I think only the wisdom to really appreciate your vulnerability is
universally protective, even if you are an honest to god super-guru.

Case in point, witness the fact that one of the early Bitcoin developers
publicly endorsed and obvious fraudster claiming to have invented Bitcoin but
who can't even get basically technical points about _Bitcoin_ right, much less
some new and unfamiliar system. In some alternative universe where that hadn't
happened his name might have easily found its way onto your list.

I agree with you that the kind of top flight technical background needed to
shunt off even fairly unsophisticated scammers is very rare.

> But I first heard about Bitcoin in 2011, so it's not quite unimaginable that
> I'll get a shot at the next one also.

Indeed, but there you wouldn't have needed to expend much-- and not anything
that could have directly made a scammer money.

I've always thought it was weird to see people who in 2011 said Bitcoin was a
scam and didn't mine any though they could have at little cost... years later
turn around and dump their life savings into super sketchy premined altcoins.
I think they learned the wrong lesson. Their skepticism wasn't a problem.

~~~
Bartweiss
"Once you factor in time" is a very good point, and one I shouldn't
underestimate because it's almost always a factor in scams. Most people can
avoid being scammed with enough time and space to consider, and most scammers
are excellent at denying those to their marks.

And yeah, now that I look at the list of people who've claimed to be Satoshi,
it's pretty alarming to see how many have gotten at least one major Bitcoin
figure to vouch for them. Even Craig Wright, who claimed he'd move the genesis
block and then simply _didn 't_ \- I guess being a Bitcoin guru isn't enough
to make sure you actually verify somebody's published transactions.

I suspect that you need several times the technical sophistication of a
scammer to catch them out, and if they know who they're pitching to the bar
might rise unattainably high. The fact that it normally doesn't, that even I
know enough to catch out scammers, has less to do with protective expertise
and more to do with not being in their intended demographic of marks. Which
ties into your last point: I don't really regret not buying into Bitcoin given
what I knew, but my takeaway is "don't be afraid to throw $100 at a crazy
idea", not "try to search out hidden gems", and so I'm not likely to be a
high-dollar target for later scams.

------
BioGeek
All those pages that you found of people having exactly that same combination
of educational background can be simply explained. They are the default sample
content of the Team page on certain Wordpress themes (Therefore also the WP in
‘Blockchain WP’). A quick Google search shows that for example the FinanceCo
theme from Radius has the same exact Education listing.[0]

So the other profiles you found could just be sloppy webmasters who didn't
remove the default Team pages of their Wordpress theme.

[0]
[https://www.radiustheme.com/demo/wordpress/themes/financeco/...](https://www.radiustheme.com/demo/wordpress/themes/financeco/team/alexander/)

~~~
jacquesm
Interesting, ok never thought that it might be the wordpress template. Will
update the text. Even so, that "Sam Chester" page on that first linked site is
legit. I think I found the legal guy too (US lawyer by the looks of it), this
is his twitter page:
[https://twitter.com/richardnacht](https://twitter.com/richardnacht)

------
omarhaneef
If we are going to list our own scam experiences here: a company asks for
$15mm on a $30mm pre.

You better have sales, I say. They do they say. $1 Billion worth!

What are your margins? 30% they say!

Uh, so why don't you go to a bank? Well, you know banks charge an arm and a
leg.

At this point, I don't believe anything but I ask for the contracts or the POs
from the companies (GE! Honeywell!) thinking I would verify them later.

I get identical looking POs, adding up to a few hundred thousand, all from
unheard of companies.

~~~
Bartweiss
Over on the employment side, I got a summer job pitch in college from a hot
new startup building some kind of app to help turn activity tracker output in
actionable info. A startup of four people.

"This sounds interesting, but I'm wondering why you're looking for a fifth
employee who's only going to be around for a few months instead of someone
committed?" "We don't want to shorten our runway with salaried hires too fast,
but we're expecting to close funding within the next year, so we can bring
back the summer hires full-time after graduation and you'll already be ramped
up."

"So you have some runway now, and you're negotiating more funding - you've
raised angel funds and are working out Series A?" "Well, we're still at
'friends and family' and we haven't pitched VCs yet, we don't want to dilute
the company too quickly. But we're starting to sound out investors and we've
had a lot of interest!"

"So if you're that early on, are you looking at hiring purely in stock? How
will that work with the temporary role?" "Obviously we can't give people
shares just for a summer of work, and we don't want to plan too far into the
future since we don't know our timeline yet. But once we close this funding
we'll of course be making very competitive salary hires _with_ stock grants."

"So it's contract work with the potential to become an early startup employee
later? I don't mean to obsess about salary, but I see it's in New York City
and I'm going to need to pay rent." "Well it's not _contract_ work as such, we
want people more dedicated to our mission than that. But I guess I could talk
to the other founders about putting together some sort of housing stipend."

"So, it's an unpaid internship in NYC, and you're not willing to put anything
beyond that in writing?" "..."

Just for fun, I kept talking for long enough to find out the top-secret
details of what the app actually _did_ , which took some doing. It was going
to assess your activity level and "holistic well-being" to present a
"supportive audiovisual experience". They'd stapled a 2000-era WMP music
visualizer to a mood ring.

~~~
omarhaneef
Ugh.

I’m glad you were aware enough to ask the right questions. However, I will add
that whatever poor judgements people make there is just this line that is
crossed with actual falsehoods that is hard to undo.

Whatever mistakes these would be employers made, at least they told the truth.

~~~
Bartweiss
Very true - I don't think I was told anything factually false, and that's
hugely to the founders' credit. It's the distinction between _caveat emptor_
and fraud, I suppose, and since some friends had gotten suckered by similar
offers I knew what to beware.

Perhaps this story fits better under the other thread here of legitimate
arrangements with scam-like effects on their partners. The pitch I got
reminded me more of a doomed restaurant than an MLM: the founders seemed
sincere about the merits of their idea at least (they demanded an [now-
expired] NDA, even!), and I really don't know if their optimism about the
company's prospects and the job's quality was faked. They knew something was
wrong well enough to bury the problems, but an outright work-for-free scam
would probably have been pitched more smoothly, maybe as a "take-home
interview assignment". As is, they might well have followed through on the
promises if they had somehow gotten their millions. They didn't exactly have
my best interests at heart, but like many people overselling failing projects,
I think they were aiming at a wildly unlikely success rather than pushing a
strictly negative deal.

------
TrackerFF
But I think the worst scammers are those that operate in a semi-legit way.
They're actually out there, in person, trying to raise money for some product
which may work on a fundamental level, but that does not mater, as they have
no plans on developing anything. Maybe they have legit experience from before,
and even have serious people that can vouch for them, if needed.

They put together startups, have a couple of good months, but then go back to
regular programming of funneling VC money into their own account, while
starving out their startup.

Then when the startup goes under, they disappear, only to resurface a year or
two later somewhere else. Probably with a new name or alias.

They almost never go for the real big fish / tens of millions, or even
millions - but just enough to live a cushy and flashy lifestyle. Nice leased
penthouse, cars, etc.

~~~
fortran77
I get the feeling that it's easier to raise money for some vaporware, and then
have fun for a couple of years with that pile of money than to spend a couple
of years self-funding something that actually works and trying to find a
buyer.

~~~
jacquesm
The more frustrating version: you work hard and self-fund for a couple of
years to make something that works. Then along comes clueless bunch 1.0 who
are bankrolled by clueless VC who then undercut you on price, over promise and
do not deliver leaving you with potentially years without sales because you
can't match the hype train. I've seen this a couple of times and it isn't
pretty. By the time they finally go belly up you may have preceded them down
that path.

------
TeMPOraL
> _I have no idea what the graph has to do with the words, maybe there is some
> connection here but I haven 't found it yet._

With the slide saying: "The lack of direct integration with operating
companies and associated funding sources creates volatility and eventually
subjects other coins or tokens to disintermediation and extinction."

(Or, translated "other tokens die because of $reasons")

I think the point of the graph is to just _reinforce the mood_. Be an
emotional influence that makes you take the slide's message more seriously.
Where the text talks about the reasons why other tokens fail, you see a line
representing something going down in value fast. For some reason, just looking
at it makes me feel sad, the "oh no my investments" kind sad. Which I believe
was the whole goal.

~~~
jacquesm
Good call. Will update the text.

edit: updated, credited. Thank you!

~~~
TeMPOraL
You're welcome, and thank you for writing this article!

~~~
jacquesm
I promised someone to pick this one apart. Pity about the flags though.

------
naravara
Total aside, but this notion that before the invention of minted coinage all
exchange was done via "barter" is just completely ahistorical. Before currency
exchange was done via favors. Instead of countable coins, you contributed to
your community and built up a reserve of "honor" or "cred" that you could use
to call in favors when you needed any kind of help or support. It's usually
referred to as a "gift economy," but people get thrown off by the term "gift."
It's less about the stuff you give or do and more about the obligations you
have as a member or friend of any given community.

The main thing to remember is that people just had a very different way of
thinking about the exchange of goods and services back then. It wasn't about
financial transactions or maximizing economic returns, it was much more about
building up cred and standing within a community.

Where financial transactions really come in is being able to facilitate
exchange between two communities where that underlying foundation of trust and
persistent social connection doesn't exist. This is why marriages between
"clans" or "tribes" or whatever would often be marked by exchange of things
that hold value like livestock, heirlooms and handicrafts, or parcels of land.
These aren't really "barter" exchanges though, they're more like collateral or
shows of good will between two groups or people who don't necessarily have a
strong basis for trusting each other.

This is why coinage really starts to come around when you have large kingdoms
or empires. Those rulers mint the coins because they control larger swathes of
territory than could be governed by the sort-of-feudal interractions of
familial obligation. So you start keeping track of things via precious metals
instead.

~~~
Terr_
In longer form: "Debt: The First 5,000 Years" by David Graeber

------
dblock
Here's a deck from the convicted con artist Anna Delvey,
[https://www.are.na/block/2250665](https://www.are.na/block/2250665)

The strongest slide is the team, which includes 2 PhDs, and an MIT research
scientist.

~~~
fortran77
People really want to believe in a "Female Steve Jobs." I think one key to a
successful scam today is a female CEO.

~~~
jacquesm
This should not be downvoted. It is _definitely_ a factor, just not quite in
that way. Founder diversity is a thing and female CEO will get you funded in
some cases where a male CEO would not. There is a huge push to level between
males and females and in some cases the balance is shot through to the other
side and critical thought loses out over the gender balance thing.

~~~
astura
[https://www8.gsb.columbia.edu/newsroom/newsn/6917/why-
arent-...](https://www8.gsb.columbia.edu/newsroom/newsn/6917/why-arent-
startups-founded-by-women-getting-more-funding)

>According to researchers from Columbia Business School and London Business
School, businesses led by women are 63 percent less likely to obtain venture
capital (VC) funding than those led by men.

~~~
jacquesm
That's not in any way contradicting what I wrote. Yes, men are much more
likely to obtain funding than women. But, in some cases women are funded when
men would be passed over with the same idea. It's similar to affirmative
action.

------
buildbuildbuild
Making the fictional company a cryptocurrency startup is lazy writing in my
opinion, they are too easy to criticize. This article would be more compelling
if it were analyzing a more “stealth” scam in a different market sector.

~~~
jacquesm
Some other time :) Candidates enough, but this is a deck doing the rounds
right now.

~~~
vikramkr
Thanks for creating this post! Fascinating read. You mentioned in the post
that a lot of the links in there would probably right t away with time - do
you think there's any value in archiving the links and linking to the wayback
versions so they're preserved for education for posterity?

~~~
jacquesm
Yes, that would be very useful.

------
majos
It's interesting to look at these slides because I so strongly prefer simple
straightforward "ugly" presentations to slick vector art ones that include a
timeline from 9000 BC. Slick presentations prime my "this is BS" suspicion.

I know this preference is a trope for people on HN (I mean, look at the HN
layout) but it's strange to me that VCs apparently have such different
preferences.

~~~
MS90
I'm not sure if I'd be able to resist asking the presenter how they got data
from 4000 years before the beginning of recorded history if I was presented
with a slide like that.

~~~
jacquesm
Totally missed that :(

------
edouard-harris
What's immediately remarkable about this deck is the frequency of poor
phrasings and misspellings, especially as you get deeper into it. Virtually
none of the "legitimate" pitch decks I've encountered have suffered from this
degree of sloppiness.

~~~
meheleventyone
Maybe it’s like the apocryphal rumour that spelling mistakes in scam emails
are really a filter to get rid of a large chunk of people who wouldn’t fall
for the scam anyway.

~~~
arcturus17
Does that make sense from a behavioral-economic perspective? What is the
scammer’s incentive to filter certain people out? Wouldn’t it be better to
move more people down the “funnel” and filter potential troublemakers as they
appear?

~~~
edouard-harris
Generally in a sales process, the further down the funnel you get (as a
prospect) the more of your counterparty's time you'll be consuming. A mass-
email might trigger a call, for example.

I think the idea is that the scammers might be pre-qualifying their prospects
for gullibility before committing further time to closing the sale.

~~~
jacquesm
That's exactly it, similar to the Nigerian scammers reference (usually spam)
in the article.

See:

[https://www.microsoft.com/en-us/research/publication/why-
do-...](https://www.microsoft.com/en-us/research/publication/why-do-nigerian-
scammers-say-they-are-from-nigeria/)

------
aty268
I have a question. How in the world do VC's ever fall for this bullshit? I
mean in most situations they have made enough money on their own to invest, so
they aren't stupid right?

~~~
smt88
1\. Most VCs don't create value. Compared to a passive fund, like an ETF, they
lose money ( _and_ take large fee, regardless of performance).

2\. Most of the people staffing VCs were not necessarily successful investors.
Many were people in their 20s escaping the NYC banking scene to be analysts in
VC. These days, there are many people on the capital side that are ex-
entrepreneurs, but that still doesn't mean they know how to spot a deal.

3\. It does not always make economic sense to try to out a scam. If your model
is that you find one mega-return to erase 100 failures in your portfolio, you
actually go around looking for deals that sound insane (like Theranos). If
other reputable VCs have already led the round, you just throw your money in
without even investigating.

4\. Most importantly, most VCs don't fall for anything this crappy. The target
is likely individuals with net worths in the millions who aren't very business
savvy. There are lots of such people (children of wealth, for example).

~~~
excitom
Related story: Around the turn of the century I was talking to a VC friend
about the dot com boom. He said "Watch out if the dentists start investing."
Meaning, people with high net worth, inflated sense of knowledge, and not much
tech savvy. Next teeth cleaning visit, my dentist enthusiastically told me
about a start up he was investing in. Coincidental or not, the crash soon
followed.

~~~
WrtCdEvrydy
I was involved in a bitcoin ATM company and left... two years later, was
sitting at my current company in the bathroom and I hear someone from the non-
technical side go 'Dude, you have to invest, it's at nearly $20,000, it could
go to a million'.

You'll never guess what happened when it passed $17,000

------
supernova87a
The thing that set my alarm bells is the projected revenue, users, posts, and
etc. column charts. They have noise in them. As if someone played with the
numbers to make them look like they're real data.

------
rwmj
Being involved in a blockchain company since 2001 is quite an achievement,
given the Satoshi paper was only published in 2008.

------
r_singh
In India anyone can purchase the balance sheet and p&l for any private company
as long as you know its name or directors name on a website like
[https://zaubacorp.com](https://zaubacorp.com)

PS - no affiliation

Edit: Not sure why I'm being downvoted, added this because I genuinely think
it is a good additional step for seed investors and HNIs investing in startups
to ensure the legitimacy of the claims made in a pitch deck.

~~~
ceejayoz
Fraudulent balance sheets / P&L statements aren't impossible.

~~~
r_singh
Fair enough, but they're much harder to fake than a pitch deck. Require co-
ordination between multiple businesses. Fake Income Tax returns, etc.

I've seen pitch decks where companies claim they have 100s of customers like
Amazon, etc. Whereas their revenues on P&L are like ~$20,000 per year.

------
winslett
I’ve seen these types of decks pitched internally at blue chips as well.
There, an audience being bewildered by innovative words is exciting. Get in,
get budget approved, get promoted before the devil even knows you’re there.

------
notahacker
I think the most important takeaway from this is how many businesses which are
not scams and have real revenues are tempted to flesh out presentations with
similar vanity metrics and spurious background info...

~~~
jacquesm
This really happens and it almost invariably leads to some pretty pointed
discussions during the due diligence. The tough part for the founders is that
any surprises during DD cause break off risk or adjustments, sometimes major
ones. Not getting funded in some circles leads to you not being able to get
funding at all. The tam-tam is pretty powerful in VC circles.

~~~
notahacker
The irony is that whilst posting that I was interrupted by a founder for
feedback on market size indicators for an investor presentation. One where the
DD guys will have signed contracts in tough-to-enter markets to scrutinise
ahead of CIO survey percentages on slide decks, but still feel my _less is
more_ advice was justified.

------
gitgud
Most pitches come off as scams to me, as their main goal is to sell you an
idea that you haven't heard before...

And some people will do what ever it takes to convince you, like; lie,
obfuscate, appeal to emotion etc...

------
danschumann
I wish I could be as "religious" about my own company as that pitch deck is
about warp. I know it's a scam, but the way its presented, I'm almost excited
about it, lol.

~~~
LoSboccacc
at face value is a great idea, you sidestep blockchain adoption by tying it to
physical and social services, you sidestep certain taxation like vat because
value is gained only when these coin are converted back into money, you're not
holding account because people purchase coins for money, so the money you sit
on is yours, they only have a guaranteed buy back price.

it's extra funny because I know a startup that did basically that and is quite
successful; but of course it focused only on the coin service exchange part
and throw away the bitcoin / services nonsense.

------
mattrp
While this points to outright scam - I’ve seen a fair number of pitch decks
that deserve to be thrown in the trash but get serious attention anyway. It
seems obvious but I’ve seen a number of investors who will ignore a history of
average growth, simply eyeball next year’s forecast, and go with their gut if
the management team has solid verbal skills and looks the part.

------
g_sch
My favorite graphics in these slides are the revenue/user graphs that show
occasional, apparently randomly inserted, MoM downturns. Could be an effort to
make them seem more "realistic", even though I would be surprised if it were
possible to make predictions with that kind of precision.

~~~
microtherion
What genuinely puzzles me is the myChauffer revenue forecast quadrupling from
Dec of Year 2 to Jan of Year 3, seemingly without any explanation offered in
the text:
[https://jacquesmattheij.com/warpdeck/WarpDeck-14.png](https://jacquesmattheij.com/warpdeck/WarpDeck-14.png)

------
known
[http://archive.vn/mvdxA](http://archive.vn/mvdxA) vindicates
[https://archive.vn/zKT4B](https://archive.vn/zKT4B)

------
TrackerFF
I can't imagine anyone falling for these scams, unless there's a complete and
utter breakdown in due diligence. At some point you're gonna go on and have a
meeting or video chat, and it'll all come crashing down.

~~~
jacquesm
You'd be surprised how many investors simply do not do due diligence at all.
There is a lot of dumb money floating around.

