Fraud Risk Assessment: StakeMiners

StakeMiners
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  • Last modified: September 6, 2015
  • Legitimacy
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StakeMiners (stakeminers.com) was launched in March 2015 providing stake “mining” services from the Philippines. The company’s legitimacy has been evaluated based on the items listed below. Every individual item has been checked for the presence of obvious red flags or warning signals. If these are present, an explanation detailing what triggered them has been included. A detailed description of the reasons to evaluate each of the included items can be found below the table.

Persuasion
Total Flags: 9 (3 Warnings = 1 Flag)
Phantom Richesflag-iconMarkets itself as the most profitable way to mine.
Scarcitythumb-up-iconN/A
Source Credibilitythumb-up-iconN/A
Social Proofexclamation_warningSelects coins that have increasing interest rates as bigger sums of money are "staked", providing a "natural" incentive to promote StakeMiners.
Reciprocitythumb-up-iconN/A
Products
Guaranteed Returnthumb-up-iconN/A
High Return / Low Riskthumb-up-iconN/A
Overly Consistent, Positive Returnsthumb-up-iconN/A
External Risk Insurancethumb-up-iconN/A
Hardware Equipment
Public Mining Addressthumb-up-iconMultiple
Pictures of Mining Equipmentexclamation_warningOnly of coin wallets. Although stake "mining" does not require much expensive hardware, it is stated that the company also mines the proof-of-work part where the underlying coin has a hybrid algorithm.
Secretive or Complex Equipmentflag-iconStake mining is based on generating interest through holding coins. Coins have to be in a hot (online) wallet in order to participate in the minting (proof-of-stake "mining") process and receive interest. This is evidently less safe than owning a mining rig, but the website is silent on this matter. Second, the website makes use of the fact that underlying coins can pay interest rates of 100 percent per annum, but completely ignores the risk of hyperinflation (returns measured in USD or other currency could end up negative).
Service
Website Availablethumb-up-iconYes
Website Registration Detailsexclamation_warningRegistered in March 2015, for a period of just 1 year.
Website Designflag-iconTerms of use largely copied from CEX.io (also means the legal basis for doing business with this company is not its own).
Grammar on Websiteflag-iconText appears unprofessional and may switch randomly from third person to first person and back. "For people who actually take the time and invest with us I will gladly share my facebook and skype so you will have every ability you need to contact me directly. I have nothing to hide from anyone, and unlike all other bitcoin related sites out there, we wanted to be different".
Payments Optionsexclamation_warningCryptocurrency only
Service Disruptions & Unbusinesslike Conductflag-iconStakeMiners tries to lock in deposits by charging extreme withdrawal fees up to 30 percent of the invested amount in the first 120 days. Questions raised with regard to the legitimacy of the service have received unprofessional responses which include abusive language and empty statements such as "fucking idiot", "assfucker" and "useless nonsense". The company has no business model because it is said it "does not keep any portion of your profit". As per November 1, 2015, StakeMiners introduced a new policy that makes withdrawing during the first 90 days completely impossible. It also added that it might not pay out withdrawal requests in full depending on the available money (delaying the remaining amount). Both additions combined could indicate a Ponzi scheme that is losing steam.
Contact Informationthumb-up-iconPresent (address and telephone number)
Business
Verified Addressflag-icon"According to website registered on:
Pryce Business Park
J.P. Laurel Ave
Davao City, 8000
Philippines

Website itself is registered at:
53 Street No3 Cu Xa Do Thanh Ward 4 Dist 3
700000 Ho Chi Minh
Vietnam

Both are high risk countries."
Verified Ownerflag-iconLeroy Fodor / Tai Bui - It has been argued that both are in fact the same person.
Business Registrationflag-iconCompany does not have an official registration under this name in either of the given countries.
Independent Auditsexclamation_warningNone

Note that items with a warning instead of a flag indicate that these could occur at a legitimate company. For example, legitimate companies will normally try to persuade you into buying their products. Multiple warnings will, however, still trigger a flag. A description for the listed items is provided below. This list is meant to assist with identifying obvious scams, and therefore does not provide any guarantees that a company is truly legitimate.

Phantom Riches
The most common tactic used by fraudsters is called “phantom riches”. By dangling the prospect of wealth such as “big payoffs”, the scam artist tries to get you to stop thinking logically.

Scarcity
Using the fear of missing out, fraudsters create a false sense of urgency with statements such as “last chance” or “only so few available”. This causes people to agree hastily, before even having the opportunity to think about what they’re doing.

Source Credibility
Persuasion is more likely when the source presents itself as being credible, expert and trustworthy. Common tactics used by scammers to make themselves look legitimate include using fake websites or hacked emails and pretending to be someone they are not. Alternatively, sources can also be external with claims such as “Warren Buffet has already invested in this”.

Social Proof
Fraudsters take advantage of herd behavior by creating the illusion of consensus or social proof that the investment is legitimate with claims that “everybody is already doing it”, or referral programs in which members encourage their friends and associates to invest as well. This automatically triggers something in the head that says: “if everybody [or someone from the inner circle] wants it, it must be good”.

Reciprocity
A business is likely to receive far more of our trust when it provides a lot of free value, because of the rule of reciprocity which causes us to tend to feel obligated to return favors after people do favors for us

Guaranteed Return
All investments carry some degree of risk, so a guaranteed profit is a clear red flag. A valid question would be why an organization would try to sell such a scheme instead of using it to get rich themselves.

High Return / Low Risk
Like a guaranteed return, a high return / low risk investment opportunity also defies the common risk-return relationship. The best advice is an old one: “if it sounds too good to be true, it probably is”.

Overly Consistent, Positive Returns
Cryptocurrency markets are among the most volatile markets, hence the performance of any related product or service is also expected to fluctuate.

External Risk Insurance
The fraudster may present some external risk insurance for the investment in order to add to its credibility. In reality, insurance is only seldom acquired and guarantees typically lack substance. Dummy companies are often used to act as the guarantor or insurer.

Public Mining Address
A cloud mining company must have a public cryptocurrency address in order to participate in the mining process. There is no reason for a legitimate company not to disclose this.

Pictures of Mining Equipment
Cloud Mining companies should be able to provide some pictures of the products they are selling besides any textual descriptions.

Secretive or Complex Equipment
Even in the world of cryptocurrencies one should be skeptical about special competitive advantages without any proper disclosure, or when the information is incomprehensible or incomplete. Too often only the positive elements are accentuated.

Website Available
Considering the importance of  domains and websites in the internet age, there is almost no reason for a legit company not to have one.

Website Registration Details
Very few scam websites survive longer than one year, so domains are generally registered for just one year unless otherwise required for the specific domain. For the same reason, websites created less than one year ago should be considered suspicious.

Website Design
Amateurish, cluttered and disorganized websites can point to a scam as many scam sites use text and images from legit websites and other sources which may not work together very well.

Grammar on Website
Many scammers have limited English proficiency.

Payments Options
Even though cryptocurrency payment options are logical for a cryptocurrency company, it is also very convenient for scammers as the recipient essentially remains anonymous. The same goes for services such as Western Union and Moneygram. Hence a lack of alternative payment options should still be considered a warning signal.

Service Disruptions &  Unbusinesslike Conduct
Especially Ponzi scheme promotors will encourage participants to “roll over” their investment. These schemes are not very fond of investors cashing out, which may lead to difficulties receiving payments and a non-responsive or difficult to reach customer service.

Contact Information
Legitimate companies have very little reason not to list their contact information.

Business Verification
First, you should never hand your hard-earned money over without knowing where it is going. Second, you should do a background check to avoid handing it to a known scammer. Be weary of people without an online identity. Scammers will typically try to hide their identity or conceal their true identity to avoid being easily discovered.

Independent Audits
Audits certainly do not root out every instance of fraud, but auditors do have a responsibility to detect errors or fraud in the company’s financial statements.

One Response

  1. StakeMiners July 4, 2015

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