Protos - Where's My Money?

The first ICO to come under the microscope of the 'Where's My Money?' blog is Protos. This blog has been authored by a guest contributor and in no way reflects the views or opinions of CryptoGlobe. 

Protos are engaged in a ICO and I found the time recently to review their Offering Memorandum. Essentially Protos is a hedge fund that is going to speculate on cryptocurrencies.

What are the manager’s qualifications for running this fund? They used to work at banks, so they will have had lots of training in chicanery. Oh, and one of their advisors works for a real fund management company – so he will know all about fleecing clients. And also based on the (unsubstantiated and unverifiable) assertion that one of them bought Ethereum at ICO, and Litecoin at $2. So did I, but I don’t have the colossal egotism to regard that as evidence of investing brilliance, just good luck.

So you get the rare privilege of giving them your money. Can you have it back by redeeming at NAV (Net Asset Value)? No, the fund is greenfield – they keep the profits and “reinvest” them. Thereby ensuring that the fees flow forever. Can you sell the token? Well, in theory. But there is no centralised exchange for security tokens. So probably not right now. What mechanism is there for ensuring the token trades at or close to NAV? Well, none really.

In fact, there is a deafening silence around secondary market trading altogether. Cayman domiciled funds are supposed to keep a register of individuals who have a beneficial interest in a fund? Doesn’t that mean every transaction is subject to prior receipt of customer due diligence? Could be a bit difficult if someone were to buy a token on the secondary market and then find it is worthless because the CDD wasn’t provided.

What price is this unbeatable offering? Well, a management fee of 2.5%. Which is high. Very high. In the golden years of hedge funds the charge used to be 2%. I guess that isn’t enough for Protos managers. And 25% of profits. Which is high, very high. In the old days 20% used to be enough. And to cap it all the Fund is going to bear all the expenses of the management team, including travel to conferences and marketing and legal costs and professional expenses and whatever. Basically anything. First class travel anyone? Parties? Chauffeur driven cars? It is so broad you could drive a bus through it. I can easily see the annual expense ratio exceeding 5%.

There has been only one substantive tweet since the ICO closed in December and I fear ICO investors have reason to worry. Protos mirrors the worst features of the existing system, without the redeeming feature of being able to exit at NAV. The only people who are going to make money from this token are the promoters of Protos.

Israeli Hacker Indicted For $1.75 Million Cryptocurrency Theft

A hacker from Tel Aviv named Eliyahu Gigi was recently indicted for his alleged role in stealing roughly NIS 6.1 million (or $1.75 million) in cryptocurrencies from people in numerous different countries, including Germany, Belgium and the Netherlands.

According the indictment filed this week, Gigi operated numerous scam websites that infected computers with malware that would steal cryptocurrencies that were stored on the devices.

The hacker stole nearly $2 million worth of bitcoin, ethereum, and dash, before they were arrested in June of this year. Gigi carefully covered his tracks by attempting to use remote servers and doing his best to conceal the cryptocurrencies and the wallet addresses that they were stored in.

He then transferred the currencies between different wallets, split them into different cryptocurrencies and used other tactics to obfuscate the ownership of the funds.

During the investigation, it was initially suspected that Gigi was guilty of stealing $100 million, however, once the investigation was concluded, that number was significantly scaled down to less than $2 million.

According to the Israeli publication Globes the investigation was conducted by the Israeli Police's cyber unit, and led to the arrest of Gigi and his younger brother, a 22-year-old demobilized soldier. The news outlet adds:

At the outset of the investigation, suspicions were raised that the two brothers had stolen $100 million from digital accounts kept in bitcoin through an international fishing fraud. The indictment eventually filed was against only the older brother, and the initial suspicions that $100 million had been stolen were scaled down to NIS 6 million. [$1.75 million]

Police were initially tipped off to the crime after receiving reports the hacker was sending messages to users on cryptocurrency forums, directing them to a website that claimed to offer wallet management software.

Some of the users who received the message thought that the website looked suspicious. Worried about their security, they reported the websites and Gigi's forum accounts to police.