Posted July 12, 2022, 6:00 PMUpdated on July 12, 2022 at 6:20 PM
“I feel manipulated, I’m ashamed of myself”, said a mother of three children who lost almost 18,000 euros. The caretaker is betting on financial projects promoted by influencers Marc and Nadira Blata, respectively 4.4 and 2.9 million followers on Instagram. “I went so far as to buy NFTs when I didn’t understand anything about them”he cried at a space – audio exchange space on Twitter – organized by the Collective for the help of the victims of Marc and Nadira.
Non-fungible token (NFT), non-fungible token in French, is the result of the association of a non-fungible asset (a picture, music or even a work of art) with a digital token. The owner of the token has an asset, the authenticity of which is guaranteed by the blockchain, this block chain technology that makes it possible to secure and verify transactions in a transparent and decentralized way.
Since the beginning of 2021 and the record sale of crypto-artist Beeple of an NFT for $69 million, a real gold rush has been at work. In a report by Art Basel and UBS on the art market, we learned that NFT sales of works of art will exceed 2.6 billion dollars in 2021, more than 100 times the amount reached in a years ago. And as always when a market is booming, opportunists take advantage of it to empty the pockets of inexperienced investors looking for gold.
Like this caregiver, they will be tens of thousands who have lost a few hundred euros by buying NFT Animoon, these copies of Pokémon cards that should be integrated into a video game. “They (Marc and Nadira) said that it was a partnership with Nintendo, they gave confidence to the buyers and promised them gifts at each stage of the project such as Jordan sneakers or a trip to Japan»explained Eddy, 36, who led the space of the collective whose goal is to collect testimonies and make prevention.
These gifts never reached their destination and the money raised for the project mysteriously disappeared from the Opensea exchange platform in early June. Total damages are estimated at $6.3 million.
“Carpet draw” and disguised advertising
This type of fraud, nicknamed rug pull, is very common in the poorly regulated world of NFTs. “the rug sweater is a scam that consists of raising funds in phantom projects and withdrawing the jackpot at the last moment», decrypted Jocelyn Ziegler, a lawyer at Ziegler et Associés, specialized in IT and digital law. Last April, the rug sweater of the Billionnaire Dogs Club, the NFT promoted by the influencer Laurent Correia (3.3 million followers on Instagram), caused a total loss of one million euros to investors.
“The main problem with influencers is that it is difficult to know if they are promoting to promote themselves or for others.»the lawyer continues to collect hundreds of complaints as part of a class action against Marc and Nadira. “Project promoters pay large influencers to encourage them to extol the merits of their NFTs without activating banner advertising», the lawyer regretted. In July 2021, influencer Nabilla Benattia-Vergara was fined 20,000 euros for promoting Snapchat’s stock market services without mentioning a partnership.
Bid manipulation and fakes
According to Fabrice Lorvo, also a lawyer, expert on the intangible rights of the FTPA, the main NFT scams can be classified into two main categories. “There is first to be related to the matter, that is to say the NFT as such, and those who live in the matter, that is the manipulator of this matter.”explained the lawyer.
In the first category, we find fake NFTs, that is a copy of another successful NFT. This is the case with the famous monkeys from the Bored Ape Yacht Club collection, whose estimated total transaction volume of $1 billion has inspired many fakes.
Another widespread scam in this category: the theft of copyrights with the sign of a work of art without the consent of the artist. In this situation, the scammers appropriate works of Chagall, Magritte or Picasso without the permission of the rights holders.
In the context of the second category, which is related to the manipulation of the object, we can say the rug sweatshirts mentioned above, to which we may add the washing business and the bomb and dump. These two types of auction scams inherited from finance are very common in the NFT world. If the methods differ, the goal is always the same: to artificially inflate the number of transactions, to practically increase the value of the NFT, which can therefore be bought at a price higher than its real value.
Blockchain-resistant scams
“These fraudulent practices are not new and the manipulation of stock market prices has existed since the dawn of time.»said Master Lorvo. “The high volatility of the price gives the impression that you have to decide quickly to get a good deal, but if it is speculation it is because there are people who have lost a lot behind it.he analyzed.
If the blockchain does not make it possible to escape these scams, it is because it provides technical security, with transparency in all transactions, but not the legal security that comes with it. “There are many immoral but not illegal practices in the world of NFTs»believes the lawyer, taking the example of cybersquatting of brand names under “.eth” (Ethereum), which recalls the early days of the Internet. “The whole problem is bringing the sheriff into this wild west”.
Currently, there is no text specifically dedicated to NFTs in France, although the Pacte law of 2019 introduced the idea of “digital assets». “ There is no NFT code but there is monetary code, civil code and contract law”, however says Master Ziegler. Thus, an NFT scam can be considered a fraudulent commercial practice within the meaning of Article L121-2 of the Consumer Code.
Be careful and bet what you want to lose
Pending more precise regulation of NFTs, investors should be cautious. “Often, these scams rely on euphoria and lack of verification”said Alexander Stachchenko, director of KPMG’s Blockchain practice. “You need to ask the team managing the project, its history or its technical expertise by looking at the Github page, like a venture capital fund would do”he continued.
In addition, the sequence of prices is very high, it is not recommended to bet more than what you are willing to lose. “We must not give in to the sirens of the show: easy money does not exist”summarizes Alexander Stachchenko.
So far, the Financial Markets Authority (AMF) has received only about thirty requests for information and a dozen reports since the beginning of 2022, with only one investor declaring losses. But he determined that it was too early to have an idea of the extent of these scams in France.
“This is a new topic and victims sometimes lose a lot of money and don’t want to file a complaint because of shame or because they didn’t declare anything to the tax authorities”, says Thomas de Ricolfis, deputy director of the fight against financial crime in the central direction of the judicial police. However, he confirmed that the first NFT fraud case was processed by his teams. “We expect more cases of this kind to come soon, as in the case of cryptocurrencies a few years ago”, completes Thomas de Ricolfis. The latter advises buyers to consult the AMF blacklists, contact the authority if in doubt, and not to give in to pressure from the seller.
The Opensea platform, the world’s leading NFT trader, revealed in January that 80% of NFTs created for free on its unused token market were fraudulent. A number that sounds like a further call for vigilance.