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Web3 Scams: Green Flags That Fool and Red Flags That Warn - Part 2

In the previous post, I talked about my recent experience of almost falling victim to a Webaverse-style scam (where sadly the founders lost $4m to fraudsters). I talked about the green flags that were present that made me feel at ease and lowered my guard. Green flags that were actually false - and were specifically designed to lure me into a trap.

In this post, I talk about the red flags that coexisted with the green flags, a recipe that gave rise to a sense of feeling confused and having mixed emotions. It is the feeling when you know something is not quite right but you are not really sure because there's no real proof you are being played. And you don't even know how you are being played because the plot has been well orchestrated.

I usually follow my instincts and they are pretty on-point .... but these people were master manipulators, expert at social engineering and working people. Just like any other deceiver - for example, a cheater in love, they make you second guess yourself and talk you out of your concerns by gaslighting and charming you. And they do everything under cover of a veneer of apparent legitimacy, competence and professionalism.

So here are my top five red flags that really set off my spidey senses:

1. They didn't look right

I know this sounds rather vague but when I saw them they looked like gangsters in suits. That was my very first impression and, as they say, sometimes a first impression is the right impression. Their background didn't add up somehow. They were from all over the place but had no real permanent residence or office space. There was a feeling of vagueness and impermanence which is a hallmark of international fraudsters as, of course, they are always on the move and don't want to be traced. I would advise people to mitigate this risk by asking for an address and checking it before the meet-up. Passports, to check proof of identity, would also be sensible. I would have done this had we actually agreed any deal anyway, but maybe bringing this step forward would have avoided the meeting in the first place.

2. They didn't know anything about my business

Although they purported to want to meet me after reviewing the pitch deck, they didn't even read it as they asked me questions that were answered in there, and they did not understand the mechanics of how the business would work. I let this one slide as I told myself this wasn't their area as it was a new investment class for them - and that is the case for a lot of new investors in Web3. However, if you meet an investor who has no real expertise in the area then ask yourself why you would want them to invest? They can't really add any real value and, of course, silent investors are perfect for some entrepreneurs, but not if they are only silent because they want to find some business to act as a front for their money. Be careful, as not all money is good money, and don't skip doing money laundering due diligence to make sure you are aware of the source of the funds.

3. They didn't pay for anything and they wanted me to come to them

I didn't expect the investors to front the cost of the hotel and flights, and I even thought that was a good sign as it meant they were treating me as an equal and expected me to take the initiative to meet them. However, what I should have maybe picked up on is that they didn't necessarily pay for the lavish lunch they hosted either! At one point the guy said he would pay, but the bill didn't ever come to the table, rather he went and purportedly paid at the front desk. It may be that he didn't pay at all and that was a deal they had with the restaurant accomplice. Or if he did pay, perhaps it was with a wad of cash, which is never a good sign and would have looked suspect to me sitting there observing. I would say that, if you are ever in a meeting like this, make sure you pay attention to what they pay for, and how. Also, a good investor, who really does want to do business with you, would know you have less cash than them and would mostly try and find time to fly to you. If they don't, then it may be a red flag.

4. They tried to rush into the deal

Although they couldn't just say we want to do the deal in the first five minutes, they did get there pretty quickly and then tried to do the mechanics of the deal (proof of funds etc) at the meeting. This is not normal. I know that, as a lawyer, even if you agree heads of terms at a meeting, you wouldn't be doing things like exchanging due diligence documents and bank statements at the first meeting. There is simply no reason for going this fast. Although these guys were a little more professional and didn't want to rush me too much, they were also typical in that they were creating a sense of urgency and trying to sweep me up in the moment. Slow things down (easily said than done when you want to do a deal, I know) but really fast moves, even when legitimate, lead to bad contracts, bad terms and a bad deal, almost always. Taking time gives you that crucial time to think, judge and phone a friend. That will all save you - that is really the thing that saved me: time to think.

5. The ask seemed a little unconventional or suspect

As I said, their main play was asking for proof of funds. Although I couldn't see how sending them a screenshot of the wallet I had created would compromise me, I also did realise that this was a weird request. When I asked them why they needed it, they gave me a reason which sounded a little implausible. However, because I couldn't see how they would use this evidence against me, I also thought it was a relatively harmless, if pointless, request. The thing is, if someone is asking you for something odd, even if it seems harmless, don't assume there is no reason for them to be asking as they may know something you don't.

6. They tell you exactly what you want to hear and fake rapport

This may be proof of social engineering when they have been studying you to find out exactly what you want, how you will behave and to find fake commonalities. One of the main ways fraudsters do this is by hacking into your social, tapping into your networks, exploiting any weak links, and hacking devices. They are constantly looking for the right time, the right opportunity and the right set of circumstances to hash out their plan and a lot of premeditation goes into the best of these scams. So, not surprisingly, when you do meet them they seem to know so much about you or have so much in common. I have found, however, they think they are cleverer than they actually are, as it's really obvious when someone is faking a connection with you or demonstrating 'false intimacy' or fake empathy. This for me was one of the easiest ones to pick up on. I know when someone is full of it and when they have been sent to try and charm you, or find out information about you to pass on to someone else.

7. They wouldn't take my less risky suggestion and were a little too keen to give me money

Although I said that they were responsible for the risk of investment, and also told them, in quite plain terms, that if they were not comfortable they should either not invest or invest a lower sum, they talked me out of it. Even though they kept saying they needed security etc, they at no point took me seriously when I said they should invest a much lower sum. Their concerns did not seem to add up with their desire to invest so quickly. If someone is willing to give you a lot of money and seems desperate for you to take it, then it may be dodgy. You should always offer options to investors as you want both parties to be happy with the terms of the deal and the risk level. Also, even if this was a legitimate investor, if they are wanting to invest so badly then you should look again at the terms, and see if you have agreed a fair deal for yourself. Sadly, bad deals are a hallmark of certain industries, like music and creative sectors as well as start-ups, and sometimes bad deals can be hard to come back from.

So those are just some of the red flags, and as you can see, they are not really conclusive either way. Rather they were nudges to my subconscious that something may not be quite right. You can have all of these red flags and still be dealing with a legitimate investor. Therein lies the problem. However, a few of these together may give you pause - pause enough to save you some wasted time and stolen money.

I do know now that I was not foolish or stupid, but I also know that I won't ever be taken in again and will definitely not have my guard down when doing business again. Next time l will be long gone before they can even get to rehearsing the 'close'.

If you are a founder, do take time to familiarise yourself with the Webaverse story, so you can spot some of the signs of a dodgy or fraudulent 'investor'

What do you think? Have you got any stories to share on scams/attempted scams that have affected you in business?

Comment below.

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