Web3 Scams: Green Flags That Fool and Red Flags That Warn - Part 1

For those of you involved in Web3, you are likely aware that the sector is plagued with bad actors. Typically, we focus on deceitful founders and fraudulent projects that rug-pull and make off with millions of dollars of investor monies.

However, recent newsworthy incidents have demonstrated that scams can occur in unexpected ways, resembling something out of a movie—and unfortunately, I almost fell victim to one. And what has been shown by this is that bad actors can sit on either side of the deal table.

I don't want to rehash my experience but essentially it followed the Webaverse scam (search for "Webaverse" on Google, and you will have an idea of how it all went down - although I was lucky enough not to have actually transferred any funds). Essentially it consisted of fraudsters posing as investors to target founders raising capital.

I would like to share some insights from my experience, so that others can be more cautious and vigilant. The reason it escalated to such an extent was the presence of both positive and negative indicators (both green flags and red flags) which skewed my judgment compared to a typical, usually online, scam.

Here are some green flags that I mistakenly took as a sign of legitimacy. The key lesson here is to avoid being lured into a false sense of security just because these green flags are present.

1. In-person meetings.

We often assume that if someone is willing to meet face-to-face, it indicates authenticity. It can be disarming, as we tend to associate fraudsters with anonymous online interactions. However, the fact that you are called to an in-person meeting does not eliminate the possibility of fraud. It simply means that the fraudster is more audacious, considers themselves skilled, and may even have support from the environment they operate in (such as restaurant or hotel owners, or a team of accomplices). They are aware that inviting you to a well-known public place puts you at ease and reduces suspicion.

2. Extensive prior interaction.

Again, I mistakenly viewed this as a positive sign, thinking that no one would invest weeks and hours of their time in getting to know me and engaging in numerous conversations if their intention was to scam me. However, this could be an indication of a highly sophisticated fraudster aiming for a significant payout. These individuals are not interested in small amounts; they have their eyes set on much larger sums. Therefore, their time investment in building rapport and gaining trust is worth the effort to them.

3. Displays of wealth.

This also happened to me. Despite having my guard up initially, they put me at ease by immediately offering me hospitality and a generous lunch - filled with the trappings of wealth - expensive wine, lobster and platters of cheese and meats. They appeared professional. Prior to the meeting, they created an impression of being well-travelled individuals, with homes in multiple countries, among other things. While I am not easily impressed by overt displays, it made me less suspicious about them targeting my money, as I assumed they had their own.

4. Requests that seem safe or ordinary.

By the time we reached the point in the meeting where the scam was revealed, my guard was lowered enough to give them the benefit of the doubt. Getting you to this point is their whole aim. They asked me to create a blockchain wallet in my own name on my own phone. Although my spidey senses were tingling at this point, I couldn't work out what their angle might be or how they would execute the scam. They insisted on me providing proof of funds to establish my legitimacy as a business entity. Even though I found this request strange, sending a screenshot of the wallet showing the funds seemed risk-free. However, technology is constantly evolving, and even with something as unassuming as a screenshot, they could exploit vulnerabilities. The moral of the story is that just because you can't see their play doesn't mean it doesn't exist.

5. Emphasising family connections or family-run businesses.

Another green flag was the claim that they were a family business comprised of family members. This was a deliberate attempt to lower my guard. The individual spoke about falling in love with his wife and their marriage (a clever strategy considering I was a woman they wanted to put at ease—it is always better to play the role of a kindly cousin or uncle). Another person present was his son, who acted as a silent note-taker, resembling an intern. I never thought to question this narrative, even though the son didn't bear much resemblance to his alleged father. Posing as a legitimate family business, with a history in the industry and seeking to diversify their ventures sounded plausible, and explained their lack of genuine understanding of the technology they were supposedly investing in.

6. Allowing time (albeit reluctantly)

I know this may sound unbelievable, but the fact that they didn't pressure me to immediately transfer the funds made me think it would be okay. I stated that I needed to go home and discuss the transfer with a friend before finalising it and showing them the screenshot. They seemed fine with that. However, little did I know that they had already stolen my private key by then and would drain the account as soon as the transfer occurred. We often assume that if they let you go or provide you with time, they aren't real criminals. But in fact, it may be a mark of their professionalism, as they understand the importance of exercising some patience (although refer to Part 2 to understand that their patience easily wears thin!).

These were some of the green flags that deceived me into a false sense of security; meticulously crafted to ensnare. I guess any good con man knows that 90% of the play is getting you to trust them. It is only when they feel you really do, that they start 'closing'

Part 2 will cover the red flags that coexisted with these green flags, but luckily they stood out just enough to prompt me to seek second opinions and save myself.

Although I was fortunate, I do think I was lucky rather than being cleverer than other founders who did lose money. The other victims that did lose money were not stupid or careless; rather, these fraudsters were astute and meticulously well-prepared.

In Part 2, I will talk about the red flags. So stay tuned...