Due Diligence for Initial Coin Offerings

The cryptocurrency market is booming with hundreds of Initial Coin Offerings (ICO) looking for financial support from investors.  Not all of these ICO will be successful and all such investments are considered to be high-risk with the potential for high return.  So, how do you evaluate which ICOs are legitimate and which will have the best chance of being successful?   Through due diligence of course!

Here are some things to look at prior to making an investment:

  • Research and learn all you can about Initial Coin Offerings. An ICO is a crowdfunding event to raise money for a new cryptocurrency asset, company, or venture.  Unlike an Initial Public Offering (IPO), you don’t necessarily own shares of the company. Instead, you own tokens that can be traded on exchanges; the values of which will rise or fall depending on the success of the venture.  Currently, ICO are unregulated so they offer both greater risk and greater rewards for investor.
  • Evaluate the ICO venture.
  • Research the target market. Just like any other start-up, you want to understand who their target customer is, the size of the market and whether the market is likely to increase or decrease.
  • Research the competition. Look at what solutions other companies are providing.
  • Ask for a comprehensive business plan and financial plan. Understand how much the ICO is trying to raise and why.  Find out know they plan to spend the money raised and determine what their timeline is for product rollout?
  • Since there are no legal reporting requirements for ICOs to accurately reports key information to investors, an analysis of peer reviewed comments and positing may prove invaluable.  This information must also be taken with a grain of salt however as peer reviews have been known to be swayed or bought.
  • Evaluate the community support to determine if the ICO will be supported by reliable exchanges.
  • Evaluate the funding and distribution of coins. How many coins will be created and distributed?  Not all ICOs are distributing all of the circulating supply of tokens.
  • Evaluate the team behind the ICO. After all, you need a competent team to manage substantial funds.  A team with experience, integrity and an in-depth understanding of the community and the market is one of the most important criteria for success.

With a proper due diligence, investors can identify the pros and cons of each investment.  The ICO market is still in its infancy and will no doubt go through many ups and down.  Some ICOs may be more popular than other, trading up quickly.  But real questions must be asked to determine if there is something substantial behind the coin to support its continued growth and success.

Frauds Aimed At Businesses Can Take Many Forms

As a professional fraud investigator, I can say that I have seen all kinds of frauds throughout my career. Likewise, many people have tried to commit fraud against me, especially while eagerly traveling the world. So I would consider myself to be pretty astute in these matters.  But even the astute can be challenged.

As a business owner and a due diligence specialist, I know that we have to trust the people we are doing business with …. to some extent.

We trust that they are telling us the truth, that they really do want our services and / or products and they are willing to pay for them.

And if we have aptly employed our due diligence procedures, then we have already vetted our potential new client to verify their legitimacy, purpose and perhaps even their credit history. But how do we protect ourselves when by all accounts, it looks like we entering into a legitimate relationship with a new client?

A few years ago, we were approached by a European investigation firm requesting our services in Canada. According to them, they were working on a multi-jurisdictional fraud case and needed an investigator in Canada to assist them.   Prior to commencing work with them, the company was thoroughly vetted and everything check out. Of course what we didn’t know then, was that this company had been set up and licensed as an investigation agency by former law enforcement personnel (or individuals impersonating them) for the sole purpose of committing fraud.

In order to commence this complex investigation, a substantial retainer was requested and received.   The money came and was quickly deposited however within a few days, the investigation had been cancelled. The client then requested a partial refund as per our contract.

Weeks of back and forth discussions initiating the contract was followed by a short two sentence email cancelling it. Red flag # 1.

We agreed to refund the money once the cheque had cleared. For those of you that don’t know, a cheque has not cleared just because funds have been made available in your bank account. It can take anywhere from 2-4 weeks for a cheque to clear through the international banking system.

Shortly after advising the client of this, we were told that the investigation was back on. Only now, the investigation budget had doubled and they wanted to send an investigator to Canada to assist us. Red flags # 2 and # 3.

For the investigator to receive an immigration visa, he needed an engagement contract. Once in Canada, he would pay the full amount of the investigation up front and in cash. Red flags # 4. By now, it was clear what was going on.

Lucky for us, we had established fraud prevention procedures to follow.

But how many companies wait the full clearance period before issuing refunds? Or get caught entering into engagement contacts that are then used to secure immigration visas? Or worse?

Companies are at risk of being defrauded just by being open for business. Even with the best due diligence program in place, fraud can happen. So don’t stop there. Protect your business from unintended harm by developing and implementing a comprehensive set of fraud prevention policies.

Auto body shop owner conned out of life savings. Man surrendered $60,000 in bogus car-shipping business deal, police say.

A recent article published by the Toronto Star highlights the need for doing due diligence prior to entering into new business deals or transactions!!!  View Article.

2014 M&A AWARD WINNER – DUE DILIGENCE FIRM OF THE YEAR: CANADA

M&A 2014 AwardsI am pleased to announce that ENVIRO-LYNX INVESTIGATIONS has just been named a 2014 M&A Award Winner for DUE DILIGENCE FIRM OF THE YEAR: CANADA by Acquisition International.

Enviro-Lynx Investigation also won the M&A Award for Fraud Investigator of the Year: Canada in 2012 AND 2013.

For more information on this award, you can visit the Acquisition International’s M&A Awards site. You can also view more information and regular updates on our Facebook page http://www.facebook.com/EnviroLynxInvestigations.

Failure to screen candidates properly leads to expensive mistakes!

Savvy consumers don’t buy a car or a house without first taking a good look at what we are buying.  Likewise, employers shouldn’t be hiring employees or employing third parties (individuals or companies) without first understanding who they are and what their background is.

We offer a number of screening services as well as background and due diligence programs that will help you reduce your risk and improve your decision making process by providing you with the most accurate, up-to-date information possible.

2013 FRAUD INVESTIGATOR OF THE YEAR – CANADA

Enviro-Lynx Investigation has just won the 2013 FRAUD INVESTIGATOR OF THE YEAR – CANADA award by Acquisition International –  the sponsors of the M&A Awards!  Enviro-Lynx Investigation has previously won this award in 2012.

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For more information, you can visit Acquisition International website for the list of the 2013 Award Winners at: http://viewer.zmags.com/publication/a87cf23c#/a87cf23c/1