The different paths to service fraud

[MarryWithBTC]

As a regular contributor in the exchanges child board, I and many other frequent members naturally approach new services with skepticism. In many cases, our suspicions prove justified, as some projects are created solely to scam users from the onset.

There are also services that manage to build a good reputation and earn the community's trust. Even then, reputation alone is not a guarantee of honesty. The tomboi scam reminded us that a service can spend months building credibility before eventually betraying its users.

This observation led to this question: Do all scam services begin with fraudulent intentions, or do some become scams over time?

This thread is intended to discuss the different paths to service fraud. Some services are designed as scams before they even launch while others begin as legitimate businesses but gradually become fraudulent due to greed, poor management or other factors. By understanding these different paths, we may become better at evaluating the risks associated with the services we choose to trust.

The different paths to service fraud:

1. Planned exit scammers:
This type of scammers are already predetermined to scam. They might be group of experienced individuals who create different scam projects and wait for victims, once they exit scam, they return under a new domain.

Their template looks thus;
-   Create or buy a professional website
-   Create an ANN thread.
-   Run signature campaigns.
-   Run free raffles
-   Respond professionally to users in their Ann thread
-   Deposit fairly acceptable escrow
-   Approve withdrawals and resolve disputes to build confidence.
-   Disappear once deposits become sufficiently large or when one big deposit way higher than the escrow amount enters.
Their reputation building is just like an investment to future theft.

Common Signs:

• Reputation building is intentional and part of the scam.
• They are usually operated by experienced teams.
• They often steal larger amounts because of the trust they accumulated

Detection Difficulty: High
Services in this category are difficult to identify because they often behave like legitimate businesses for an extended period of time before exiting.

2. Opportunity scammers:
Services in this category start genuinely. They process transactions, interacts with the community, accept suggestions that improve their service and build reputation gradually.

Then one day they receive deposit way higher than they expected; instead of continuing business, greed takes the stage and eventually wins.

The logic will become "Why continue to make $2,000 monthly when I can disapear with $100,000

Common Signs:

• They start genuinely
• When greed sets in, they'll introduce unexpected KYC requirements, frequent maintenance etc
• Communication reduces or becomes less transparent

Detection Difficulty: Very High
Unlike the planned scam, there might be no red flags during operations, this is why it's very difficult to detect in the early stage. But they could easily transition to a fraudulent service when there is a triger.

3. Fake services:
These aren't real exchanges, casinos or mixers. Their mission is simply to steal any available deposits. They are so fake that they are easy to detect, only fools are expected to fall for them. This type springs up daily in the exchanges board. They do not put in any efforts to look original. The creators use AI to hastily create their websites, just like they are creating many of such fake services simultaneously. They use chat bot automated messages to spam the Ann thread. They don't respond to questions of any kind.

Common Signs:

• Copied website/UI from another service
• Newly registered domain.
• Fake testimonials and reviews.
• Fake reserves or unverifiable claims about liquidity

Detection Difficulty: Very Low
These type of services usually have numerous red flags because their patience is so fake that they want to steal quickly

4. Slow-rug or Selective scam services:
These services are dangerous because they operate for a long time before they can be bursted. They also have the tendency of setting confusion among community or forum members.

The reason is that they scam selective. While a few will be raising alarm for scam, others will be praising the service. This make them to maintain positive public image. Reviews don't help because you will see good reviews as much as you will see bad ones. They could even indulge in review influencing.

The scam by refusing large withdrawals;
freezing accounts under vague policy violation;
demanding excessive KYC only after a user wins big or larger deposits enter, in the case of casinos;
manipulating exchange rates etc

Common Signs:

• Contradicting reviews
• Contradicting terms of services or unclear policies
• Small transactions are processed quickly, larger ones are selectively held

Detection Difficulty: High
I had some challenges rating this. I could easily go for "moderate" because there would definitely be red flags. But I decided to go for high because it might be difficult finding a clear case of fraud since there is divided opinion about this category of service. If you push more, they'll claim you are sent by competitors to attack them.

5. Ownership change scams:
Some services silently change hands. New owners will ride on the purchased reputation and customer base to scam.

They do this by slowly changing policies and operational procedures until they steal deposits. The new owners may initially maintain the same level of service to avoid raising suspicion until they gather enough profits and have big deposits that is scam worthy, they'll gradually lower standards and exit scam.


Common Signs:

• Common with old services with good reputation
• The service reputation history will gradually deteriorate
•   Sudden change of key staff
• New unfavourable policies will emerge

Detection Difficulty: Moderate
This depends if transfer of ownership is made public or not. But it is worthy to note that not every ownership change leads to scam. But once there is a change, be alert because their are some projects which lasted for up to a decade but ruined by the new owners

6.Others :
I didn't know what to name the services that fall under this category, so i decided to use "others".

These services might not have an initial intention to scam but after facing difficulties like;

• Massive Hacks
• Regulatory actions
• Mismanagement or insolvency

they will choose to conceal the problems and eventually misuse customers funds

There might not be specific qualities for this, because it is like a hybrid scam model but I will rate the Detection Difficulty as High
This is because the underlying causes of scam are often hidden. Customers might continue to trust the services while they suffocate and wind up silently.

Are there other paths to fraud not captured here; kindly mention and I'll gladly include.
You made it to the end, thanks for reading through.
I made this post to help us study services, and understand if they fit in one or two categories. The crypto space is full of scam, posts like this can raise our consciousness. I wanted to make this post in the exchange child board but I discovered that mixers and casinos are not exempted here.

Before you use any services, check their reputation, if they have accessible security funds and if they are listed in some directories like;
BitList
BitMixList
KycNotList
Monerica
etc
Pay attention to the reviews.

I also use this opportunity to mention icopress, NotATether and other directories owners to consider creating a space for escrow in their platforms (even if for only this forum users). It will save the stress of registering in a foreign platforms where one will pay up to $200 in order to claim an escrow fund.

Thanks and Peace!

[Z-tight]

2. Opportunity scammers:
Services in this category start genuinely. They process transactions, interacts with the community, accept suggestions that improve their service and build reputation gradually.

Then one day they receive deposit way higher than they expected; instead of continuing business, greed takes the stage and eventually wins.

The way i see it, every service that goes rogue, either planned to scam or at least has fraudulent people running it, people who can change their ideals at any time. Yeah, you could say they didn't inmediately pull the rug, but they had fraudulent and greedy people running the service, so sooner or later, the inevitable was going to happen.

I believe that individuals and institutions that actually started a service genuinely remain that way until the very end and we have had good examples of such services, i.e. eXch. If you claim to start genuinely and later go rogue, then you were never honest and always had fraudulent tendencies.

[MarryWithBTC]

2. Opportunity scammers:
Services in this category start genuinely. They process transactions, interacts with the community, accept suggestions that improve their service and build reputation gradually.

Then one day they receive deposit way higher than they expected; instead of continuing business, greed takes the stage and eventually wins.

The way i see it, every service that goes rogue, either planned to scam or at least has fraudulent people running it, people who can change their ideals at any time. Yeah, you could say they didn't inmediately pull the rug, but they had fraudulent and greedy people running the service, so sooner or later, the inevitable was going to happen.

Thanks for your input...
I understand from your opinion that you are treating honesty as a two-ways something; either one is honest forever, or was never honest at all. You didn't factor that character changes mid-way. It is only a few that will withstand the temptation of remaining true when a deposit of $5million hits their wallets. Especially, when they are not registered anywhere and no one can trace them.

I believe that individuals and institutions that actually started a service genuinely remain that way until the very end and we have had good examples of such services, i.e. eXch. If you claim to start genuinely and later go rogue, then you were never honest and always had fraudulent tendencies.

For the case of eXch, I think that remaining honest until the closure of service does not prove that any service who scams intended it from the beginning. I can say that it only proves that some services remain honest till the end e.g eXch

[Z-tight]

You didn't factor that character changes mid-way. It is only a few that will withstand the temptation of remaining true when a deposit of $5million hits their wallets. Especially, when they are not registered anywhere and no one can trace them.

That's the point, services that stay true to their ideals are those that are legitimate, and indeed were from the beginning. If you can take a user's deposit and make it yours, it is safe to say you were never real and you were only waiting for the right opportunity to steal. Take note that large deposits also produces large returns from processing fees, and over time the service can make a whole lot of money, legitimately.

For the case of eXch, I think that remaining honest until the closure of service does not prove that any service who scams intended it from the beginning.

Like i said, even if they started well at the beginning and didn't pull the rug, but they end up doing so, then they were run by people with the tendency to be fraudulent with the 'right' opportunity. It doesn't matter to me what the supposed intentions were at the beginning.

[PX-Z]

5. Ownership change scams:
Some services silently change hands. New owners will ride on the purchased reputation and customer base to scam.

They do this by slowly changing policies and operational procedures until they steal deposits. The new owners may initially maintain the same level of service to avoid raising suspicion until they gather enough profits and have big deposits that is scam worthy, they'll gradually lower standards and exit scam.
...

I'm not really aware of this kind of strategy, but usually when a new management takes over its always becomes worst from being just bad service. If there's no announcement about a change in management, that's something people should be cautious about. A lack of transparency can raise legitimate concerns, especially if the quality of service suddenly changes.

Once users notice significant changes without any official explanation, it's probably a good idea to stay alert, withdraw any funds or assets if necessary, and consider moving elsewhere until the situation becomes clearer. It's always better to be cautious than to be caught off guard later.

[hugeblack]

If we go into details, all of these methods were discovered after the fraud occurred, and therefore, over time, scammers will discover new tricks. So, instead of learning more about new scammers’ methods, we must be aware of how to avoid fraud by

 1) not trusting any new project before providing the appropriate guarantee.
 2) Split the deposits. Instead of making a transaction for $10,000, always try to make it less than 50% of escrow amount. It is true that this means more delays and fees, but it is better than losing your entire capital.

[Taskford]

If we go into details, all of these methods were discovered after the fraud occurred, and therefore, over time, scammers will discover new tricks. So, instead of learning more about new scammers’ methods, we must be aware of how to avoid fraud by

 1) not trusting any new project before providing the appropriate guarantee.
 2) Split the deposits. Instead of making a transaction for $10,000, always try to make it less than 50% of escrow amount. It is true that this means more delays and fees, but it is better than losing your entire capital.

Those are helpful inputs to read, but what people really need to do is to focus on preventing those scam. Since this could be helpful long term strategy for them. Scammers evolve and their methods of scamming change. So instead of chasing those new old tick they used.

Better to have doubtful attitude and always  do a research first before joining. Since with this this will make them a hard target for scammers.

Much better they should reduce those doing blind trusting and dropping immediate big decision, then also when doing huge transfer as what you have mentioned. Always do test transaction or anything to verify if everything is safe.

[noorman0]

-snip-
6.Others :
I didn't know what to name the services that fall under this category, so i decided to use "others".

These services might not have an initial intention to scam but after facing difficulties like;

• Massive Hacks
• Regulatory actions
• Mismanagement or insolvency

This can happen to several types of services, primarily due to leaders who are too greedy and driven by fame, which leads to fraud.
FTX and its family are among the services that have ended up being mismanaged. There's also Frebitco, which is currently being pursued by hundreds of customers who are unable to withdraw funds. Their service was once legendary and trusted.

[coin-investor]

5. Ownership change scams:
Some services silently change hands. New owners will ride on the purchased reputation and customer base to scam.

They do this by slowly changing policies and operational procedures until they steal deposits. The new owners may initially maintain the same level of service to avoid raising suspicion until they gather enough profits and have big deposits that is scam worthy, they'll gradually lower standards and exit scam.

If I'm the owner and the one who built the reputation of the platform, I will clearly stipulate that there should be an announcement of change of ownership because, if ever they do an investigation and prosecution after the scam, I will be part of the scheme because I did not make an announcement of change of ownership.

A licensed and compliant platform does this step; as a former owner, you want to free yourself from liability or issues that will arise after the change of ownership.

[MarryWithBTC]

If we go into details, all of these methods were discovered after the fraud occurred, and therefore, over time, scammers will discover new tricks. So, instead of learning more about new scammers’ methods, we must be aware of how to avoid fraud by

 1) not trusting any new project before providing the appropriate guarantee.
 2) Split the deposits. Instead of making a transaction for $10,000, always try to make it less than 50% of escrow amount. It is true that this means more delays and fees, but it is better than losing your entire capital.

I agree with you on this, but I am also of the opinion that even before we commit our $10 into a platform, they should at least appear trustworthy.

While we do our own part, by being careful and splitting funds, we should also try to uncover scammers tactics as they will eventually run out of ideas when majority are aware of their strategies.

5. Ownership change scams:
Some services silently change hands. New owners will ride on the purchased reputation and customer base to scam.

They do this by slowly changing policies and operational procedures until they steal deposits. The new owners may initially maintain the same level of service to avoid raising suspicion until they gather enough profits and have big deposits that is scam worthy, they'll gradually lower standards and exit scam.
...

I'm not really aware of this kind of strategy, but usually when a new management takes over its always becomes worst from being just bad service. If there's no announcement about a change in management, that's something people should be cautious about. A lack of transparency can raise legitimate concerns, especially if the quality of service suddenly changes.

Once users notice significant changes without any official explanation, it's probably a good idea to stay alert, withdraw any funds or assets if necessary, and consider moving elsewhere until the situation becomes clearer. It's always better to be cautious than to be caught off guard later.

I assume that the previous owners are offered higher amount of money to slow the change of ownership announce. If ownership change announcement is done immediately, the service could lose a good percentage of customer base, especially if they are not global brands or the new owner is unpopular and untrusted.

The case of Elon Musk and twitter was smooth because the former is already a top global player.

[sunsilk]

While we do our own part, by being careful and splitting funds, we should also try to uncover scammers tactics as they will eventually run out of ideas when majority are aware of their strategies.

I don't think that the majority of them will run out of ideas. There's always the new and clever ways of creating these services that they'll provide. One thing is because creation of their platforms are very easy and there's the template that's being provided for them at a cheap rate.

The reality is that, while we can see the bad signs at the beginning. In most part, they're not going to show their true intentions from the beginning.

They only await for that one big hit/deposit for their service before they actually decide to rug.

[MarryWithBTC]

While we do our own part, by being careful and splitting funds, we should also try to uncover scammers tactics as they will eventually run out of ideas when majority are aware of their strategies.

I don't think that the majority of them will run out of ideas. There's always the new and clever ways of creating these services that they'll provide. One thing is because creation of their platforms are very easy and there's the template that's being provided for them at a cheap rate.

The reality is that, while we can see the bad signs at the beginning. In most part, they're not going to show their true intentions from the beginning.

They only await for that one big hit/deposit for their service before they actually decide to rug.

There's always clever and even made easy by AI. Then we will also not rest in unfolding their new ways.

The last paragraph of your post got me thinking... I have been discussing, how genuine business owners could turn fraudulent, but is there a situation that someone who intends to scam repents on seeing that the business is profitable. Seeing that they could make good gains in the future, why ruin it?

[robelneo]

They only await for that one big hit/deposit for their service before they actually decide to rug.

There's always clever and even made easy by AI. Then we will also not rest in unfolding their new ways.

The last paragraph of your post got me thinking... I have been discussing, how genuine business owners could turn fraudulent, but is there a situation that someone who intends to scam repents on seeing that the business is profitable. Seeing that they could make good gains in the future, why ruin it?

It all depends on the business model: mixers and anonymous exchanges, and HYIPs can do that, but a centralized exchange and an investment platform that is fully compliant can't pull the plug on one huge deposit; if they do this, they will be prosecuted and sentenced.
A genuine, compliant business is expected to run long-term; it should not have a hidden agenda to scam. Authorities are quick to take action to prevent other business doing the same.

[sunsilk]

I don't think that the majority of them will run out of ideas. There's always the new and clever ways of creating these services that they'll provide. One thing is because creation of their platforms are very easy and there's the template that's being provided for them at a cheap rate.

The reality is that, while we can see the bad signs at the beginning. In most part, they're not going to show their true intentions from the beginning.

They only await for that one big hit/deposit for their service before they actually decide to rug.

There's always clever and even made easy by AI. Then we will also not rest in unfolding their new ways.

The last paragraph of your post got me thinking... I have been discussing, how genuine business owners could turn fraudulent, but is there a situation that someone who intends to scam repents on seeing that the business is profitable. Seeing that they could make good gains in the future, why ruin it?

That's personal and we don't know from these fraudsters if there will be a change of heart if the service they intend to use to scam people becomes profitable.

IMHO, these scammers will always be what they used to be and it's rare to see them change unless they're put behind bars.

Anyway, no one knows if they'll suddenly change their minds when they see it profitable when the business goes as usual.

[Aanuoluwatofunmi]

I keep wondering why will a platform decided to operate for the intention of scam, after taking their time to introduce a token or coin, run a successful exchange or website, have a signature campaign and also engage on various kind of contest to engage their users for opportunities to be able to use their platform more conveniently, an at last you will still discover that the intention of all this is to operate an exit scam, this is nothing than a pure misorientation and misconception of idea.

[Z-tight]

I keep wondering why will a platform decided to operate for the intention of scam, after taking their time to introduce a token or coin, run a successful exchange or website, have a signature campaign and also engage on various kind of contest to engage their users for opportunities to be able to use their platform more conveniently,

That's because it was run by people who would scam unsuspecting individuals when they find the right opportunity, and it usually presents itself when a huge deposit hits the exchange. Like i already said, in my opinion, i don't think services change their ideals along the line. If it ends up pulling the rug on customers, then it was always run by people who could steal from others, and so they were never honest or legitimate.

but is there a situation that someone who intends to scam repents on seeing that the business is profitable. Seeing that they could make good gains in the future, why ruin it?

If they had the intention of pulling the rug, then they surely would when someone is crazy enough to deposit a very large amount at one go, even if it takes a very long time. That's why it is recommended to always break your large deposits into smaller bits when sending it to a custodial service.

[MarryWithBTC]

xxx
The last paragraph of your post got me thinking... I have been discussing, how genuine business owners could turn fraudulent, but is there a situation that someone who intends to scam repents on seeing that the business is profitable. Seeing that they could make good gains in the future, why ruin it?

That's personal and we don't know from these fraudsters if there will be a change of heart if the service they intend to use to scam people becomes profitable.

IMHO, these scammers will always be what they used to be and it's rare to see them change unless they're put behind bars.

Anyway, no one knows if they'll suddenly change their minds when they see it profitable when the business goes as usual.

It is likely that a scammer is not going to change their mind no matter how profitable they suddenly become.

The best they would do is to delay exit if they become profitable. They will delay the exit in order to take enough profit before eventually exiting.