Evidence of Potential Fraud by Exchanges in the IEO Sector
In the process of running our own Initial Exchange Offering (IEO) through the CoiNeal exchange, the CYBR team has uncovered what we believe to be evidence of deliberate fraud by the exchange, fraud that negatively affects both the exchange’s consumers and the projects launching on the exchange.
A Summary
CYBR ran an IEO on CoiNeal from June 23 to July 2. The goal was to raise roughly $4 million USD. During the IEO and shortly after the IEO concluded, CoiNeal reported to its customers and to CYBR that roughly $2.3 million USD worth of CYBR were sold. CYBR didn’t receive any details on the sale’s proceeds until a few days after the sale concluded, July 4. The total reported proceeds were only $3456 USD.
At this point in time CoiNeal still displayed the inaccurate sales numbers. When Mr. Key brought this up to the listing manager at CoiNeal, he blamed this on a technical glitch. When Mr. Key looped in his attorney, the site was almost immediately updated to reflect the actual sales numbers. CoiNeal then made an announcement saying that they would not be listing CYBR “due to insufficient preparation” on CYBR’s part and “inconsistencies in the cooperation process between CYBR project and Coineal.”
We have reason to believe that this isn’t the first time that CoiNeal has released inaccurate IEO sales numbers, especially as they’ve begun removing the results of previous IEOs on their launchpad page. We believe that had CYBR not pushed back on this, CoiNeal would have moved forward with the listing and worked out a deeply discounted deal for the unsold tokens or another way to monetize them down the line.
The details
CYBR CEO Shawn Key first connected with CoiNeal’s Oleg Poskotin in early May of 2019. We reached an agreement to launch the IEO on CoiNeal’s Launchpad due to the CoiNeal team’s assurances that the fundraising would be successful. CoiNeal was to be responsible for the majority of the marketing efforts. Initially, the IEO was scheduled to begin June 1 and run for three days, but CoiNeal pushed back the launch to June 23. The hard cap on the IEO was $4.2 million USD.
In the first 8 hours of the IEO, CoiNeal’s launchpad reported that only 0.02% of the total available tokens — less than $1000 USD — were sold. The offering had also been extended to July 2 without consulting with CYBR’s team. Within an hour of Mr. Key contacting the listing manager to express his concerns, the reported sales jumped to 51% of the hard cap, or slightly over $2.1 million USD. When the sale concluded on July 2, the reported sales had increased to 56% of the hard cap, just over $2.35 million USD.
It’s worth noting that CYBR’s only insight into sales performance during the offering was the information displayed on the launchpad itself. At no point during the actual sale did we receive any information on the number of participants or the volume of tokens sold other than what was available to the public. We only received detailed sales information on July 4th, 2 days after the conclusion of the sale. The actual sales numbers consisted of a total of only 24 sales, for a total of $3456 USD.
Up until we received this report, the CoiNeal Launchpad still listed the IEO as having reached 56% of the hard cap. Shortly after, it was once again dropped down to the initial 0.02% of the goal that had been displayed in the first few hours. After the CoiNeal team was contacted by CYBR’s attorney, information on the CYBR IEO was removed entirely.
We have spoken to other projects that launched on CYBR that reported similar inconsistencies, but unfortunately were not in the position to go public with this information. After their IEOs concluded, we were told, there were discussions about things like token swaps with other projects, which would allow both projects to take advantage of market fluctuations to obtain the funding that the IEO was intended to provide. According to CoiNeal, these projects’ IEOs were successful. It’s our hope that the leaders of these projects will also come forward themselves to shed light on these activities.
What this means
The IEO model was intended to be a more trustworthy alternative to the ICO, which is fraught with regulatory hurdles, vaporware projects, and out-right scams. An exchange’s role was to weed out bad actors and non-viable projects and to provide transparency into the sale itself. IEO investors rely on the integrity of the exchanges. If that integrity can’t be trusted, then the IEO as we know it is dead.
“CYBR was created to protect the cryptocurrency community, including investors, developers, and exchanges, from hackers, bad actors, and fraud,” says CYBR CEO Shawn Key. “At no point did I ever imagine a need to protect investors from the exchanges themselves.” He anticipates more issues like this coming to light in the coming months.
CYBR was able to come forward with this information only because the project wasn’t solely reliant on the funding from the IEO for its development and launch. Without other sources of revenue, we would have been forced to choose between keeping this private or, potentially, not being able to move forward with the project, which could have been even worse for our investors than anything that might come out of a back-room agreement. If you have evidence of similar dealings with an exchange, we encourage you to share that information. If you’re uncomfortable doing this yourself, you can contact CYBR CEO Shawn Key on Telegram at t.me/CYBR_CEO_cybrtoken_io.
