Earlier this year, fans of the Belgian micro-hydropower plant developer Turbulent were surprised to see the company was launching an initial coin offering.

Co-founder and Chief Innovator Geert Slachmuylders was surprised too when he was contacted for more details. That was because the ICO, an unregulated form of crowdfunding used by blockchain companies, had nothing to do with Turbulent. The whole thing was a scam.

The fake ICO had its own website, Turbulent.energy (since taken down), plus a Facebook page and a Twitter account. The branding and product information for all three was lifted directly from Turbulent’s own site. Even the founders’ profiles had been copied.

Despite the fact that Turbulent’s business has nothing to do with blockchain, people were taken in. This was February 2018, when ICO fever was in full swing. The month set a new record for ICO fundraising, with almost $2.4 billion being pulled in across 63 offerings, CoinDesk data shows.

“There were people messaging me and my colleagues on Facebook, saying, ‘I just bought your shares, but what do I get in return?’” said Slachmuylders. “I was like, ‘What?’ We do not do coins. We just have a normal company creating renewable energy technologies.”

Turbulent moved quickly to file a complaint with online safety agencies, said Slachmuylders. The company also took to social media to warn potential investors of the scam. Fortunately, he said, “We have a better online presence than the scammer.”

Turbulent’s followers sent authorities hundreds of messages about the hoax, and the fake website was closed down in a day, said Slachmuylders, although the fraudulent ICO’s Facebook and Twitter accounts are still live.

But perhaps the most surprising twist was that the scammer contacted Slachmuylders to say she was sorry. “As far as I know, it was a single Russian woman,” Slachmuylders said. “She didn’t say she worked with a group or anything.”

A new phenomenon

Slachmuylders suspects the scam was an opportunistic move prompted by the fact that one of Turbulent’s videos had gone viral at the time, creating the kind of buzz that might appeal to cryptocurrency fans searching for the next bitcoin.

The timeline on the Turbulent ICO Twitter account shows the scammer intended to avoid detection by moving quickly. The first post, on Feb. 16, said the ICO would start just three days later.

Turbulent was lucky, though, because its already-significant social media following meant the fake ICO was uncovered early on. It aimed to raise $6 million, but Turbulent estimates no more than around $1,000 was collected before the fraudulent website was shut down.

Importantly, no major Turbulent stakeholders were taken in. But the episode underscores how easy it is for fraudsters to potentially make money from hoax ICOs. “People don’t do their due diligence when investing in cryptos,” Slachmuylders lamented. “It’s ridiculous.”

It’s also not uncommon.

Colleen Metelitsa, a grid edge analyst at GTM Research, first became aware of the phenomenon when she spotted an industry contact listed as a member of the team involved in Garuda Energy, an Asian solar energy blockchain company that was readying for an ICO.

Metelitsa thought it odd that her contact made no mention of Garuda Energy in his LinkedIn profile.

When contacted, the executive confirmed that fraudsters had used his LinkedIn profile details, along with those of the other supposed members of the management team, to lend authenticity to what was in effect a fake company and ripoff ICO.

“This is a new low for a scam,” he said.

The website has since been taken down. The fact that none of Garuda Energy’s co-founders mentioned the company on their LinkedIn profiles was “suspicious,” Metelitsa said.

Garuda Energy hoaxers

Experience elsewhere in the cryptocurrency world suggests many ICOs should be treated with extreme caution. “It’s across the blockchain industry,” said Metelitsa. “You can do an initial coin offering for a company that is totally fake.”

The open, collaborative nature of the crypto sector and of the internet itself means it is easy for scammers to build Frankenstein ICOs by copying and pasting others’ white papers, founder team profiles, and even, as in the case of Turbulent, branding and collateral.

The one critical thing the Garuda Energy hoaxers seemingly failed to do was to raise much of a following for their ICO, thereby nixing their chances of gaining much of a return.

But if you can convince enough investors that your offering is genuine, then once you have made a few million with a fake offering, you can just delete your website and vanish into the ether, leaving investors to vent their frustration on founders who don’t even know of the scheme.

Because scammers are often based in hard-to-prosecute jurisdictions such as Russia or Ukraine, there is little that authorities can do to control blockchain scams, other than try to raise awareness of the issue.

Perhaps the highest-profile attempt so far is HoweyCoins, an ICO site that offers investors a token sale that “captures the magic of coin trading profits and the excitement and guaranteed returns of the travel industry.”

But if you try to follow any of the links on the site, it becomes apparent that this travel-sector ICO is really about taking investors for a ride. In fact, the whole thing is a fake set up by the U.S. Securities and Exchange Commission to warn against the dangers of fraud.

The SEC says there are five red flags that investors should watch out for on ICO sites: claims of guaranteed high returns, celebrity endorsements, assurances that the scheme complies with the SEC’s rules, the ability to invest with a credit card, and pump-and-dump tactics.

Separating the honest ICOs from the fakes

Metelitsa, meanwhile, has identified around half a dozen energy-related ICOs that appear suspicious. As with Garuda Energy, in many cases it is because something doesn’t quite ring true about the founding team. Finding out if the ICOs are kosher is not always easy, though.

One problem with establishing the credentials of these schemes is that they may lack well-functioning communications channels. If emails and phone calls go unanswered, it could be due to fraudsters keeping a low profile.

However, it could equally be because the company’s shoestring staff of millennials is only paying attention to Slack. Another challenge in separating honest ICOs from fakes is that, as with any startup environment, some ideas simply may not be very good.

The website for Eclipse Energy, for example, promises investors participation in a scheme based on “revolutionary magnetic generators” and a futuristic energy trading platform that uses artificial intelligence.

Eclipse is aiming to raise $50 million, but its website does not does not even list a postal address or phone number for the company.

Elsewhere, Universal Energy Coin, which lists a postal address in the Cayman Islands, is aiming to raise funds for a mysterious technology called the Searl Effect Generator, which seems to be a form of perpetual motion machine.

Despite repeated attempts, GTM was unable to make contact with either company, so it remains unclear if these ICOs are scams or bona fide attempts to raise cash for fanciful technology schemes.

The Wild West of blockchain startups

Either way, insiders admit that there is a significant risk of fraud in the Wild West-like world of blockchain startups.

“I personally don't know anyone who has fallen victim to this, but I definitely know it happens,” said Joseph Rubin, CEO and founder of Rubius, a decentralized payment network.

“I have seen some questionable token sale sites in the past few months where I assumed things like this were taking place," he said.

Blockchain startups often operate with almost zero revenue, he said, and thus struggle to attract the talent they need to improve their investment-worthiness.

“I have been on the other side of the ICO process, so I know firsthand how tempting it could be to simply use another's profile without asking rather than taking the time to hire a complete team,” Rubin said.

The lesson for investors is simple: Just because a project uses blockchain, that doesn’t make it a surefire investment. If anything, you may need to work harder on due diligence with a blockchain company than you would with a traditional startup.

Slachmuylders, for one, was impressed with the amount of work that his scammer put into developing her fake Turbulent ICO concept. The scheme’s white paper “is actually pretty impressive,” he said.

He copied the whole website in case he ever needs to do an ICO of his own. “It’d save a lot effort in making the business plan,” he joked.