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SPECIAL REPORT – Little known by many investors, the cryptocurrency reviews are for sale

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By Anna Irrera and Elizabeth Dilts

NEW YORK, Nov 27 (Reuters) – When cryptocurrency issuers want positive coverage for their virtual currencies, they buy it.

Self-proclaimed social media personalities charge thousands of dollars for video reviews. Research houses accept payments in the cryptocurrencies they are analyzing. Evaluating "experts" will classify anything positively, at a price.

All this is common, according to more than two dozen people in the cryptocurrency market and in the documents reviewed by Reuters.

At the start of this year, the Ukrainian start-up Hacken was trying to promote his new currency after raising $ 3 million online at the end of 2017. The CEO Dmytro Budorin and his team they identified a list of nearly 200 cryptocurrency social media who thought they could help them, he said.

Hacken paid $ 7,500 for Christopher Greene, a guest of Alternative Media Television – a YouTube channel with over 500,000 subscribers – to review his currency in a video, Budorin told Reuters. In the 25-minute video, released June 22, Greene deluded Hacken's coins and business, describing it as a "great market opportunity" with "potential 1,000 returns".

Nowhere in the video – which has more than 92,000 views – Hacken's payment to Greene has been mentioned. Greene, who worked for the wealth management company Merrill Lynch, directs the viewers in the first minute of the video to a disclaimer on his website that states that "he may receive compensation for products and services" that he recommends. There is no specific mention of Hacken, or of certain specific cryptocurrent issuers, who pay it.

Greene did not respond to Reuters emails and telephone messages asking about his work for Hacken.

Four days after the YouTube review was published, Greene turned to Twitter to brag about the fact that Hacken's currency had increased by 14% over the course of the day to $ 1.54 per currency.

Some people have paid attention. Carter Zurawel, a yoga instructor in Calgary, Canada, replied to Greene's tweet: "That Hacken video was a great man! They bought me a couple of hundred."

The chip price then fell more than 75 percent to 36 cents. Zurawel told Reuters in Twitter messages that he lost much of his initial investment, worth several hundred dollars. He said he did not know that Greene was paid for his video on Hacken, but he shrugged his poor currency performance. "I will probably keep it because I firmly believe that the cryptocurrency market will meet in the future," he told Reuters.

Budorin told Reuters he acknowledged that the company's payment to Greene and other YouTube reviewers was "unethical". Video reviews "should be made with (a) sponsored tags or only for projects that (the) reviewer supports personally," he said.

Hacken's approach exemplifies a pay-per-play hype machine that produces recommendations from hundreds of thousands of hungry investors. Few researchers or experts reveal their holdings of digital activities, which so far have existed in a gray regulatory area.

Last December, the encrypted bubble peaked: the bitcoin, the largest cryptocurrency, fell more than 80% from its maximum just above $ 20,000. The total value of all virtual currencies is now around $ 121 billion, down from around $ 830 billion at the start of the year. (GRAPHIC here: it grows in number but decreases in value)

This did not stop the hype from the hype machine.

GRAY REGULATOR AREA

The so-called "influencer marketing" is common on social media, where celebrities and others advertise anything from shoes to cars. Even in these tricks the lack of disclosure is common, which could mean that the buyer is not aware of a conflict of interest. When it comes to cryptocurrencies, however, stricter rules may apply.

In July 2017, the US Securities and Exchange Commission (SEC) published a report on its digital currency surveys and warned market participants that "virtual currencies or tokens may be securities and subject to federal securities laws."

The SEC issued a more specific warning on the promotion of online fundraisers known as initial coin offerings (ICO) on November 1 last year. "Any celebrity or other person who promotes a virtual token or a currency that is a security must disclose the nature, scope and amount of compensation received in exchange for the promotion," the SEC said in a public statement published on the his website.

Failure to act is a violation of the anti-propaganda provisions of federal securities laws and could also be a fraud, the SEC said.

The SEC has not issued determinations on which cryptocurrencies considered as securities. But the agency has brought actions against a dozen or so companies connected to international product organizations, some of which the agency has identified as offers of unregistered securities, and therefore subject to its regulation.

The SEC has not targeted foreign money offerers. His warning in November 2017 – near the climax of cryptic frenzy – alone led to a "dramatic decline" in celebrities endorsed by ICOs, said Stephanie Avakian, the SEC executive co-director in September. The SEC refused to comment on Reuters for this story.

However, over the last 18 months hundreds of so-called cryptocurrency experts have emerged and their activity has only slightly decreased. Now there are more than 2,000 cryptocurrencies competing for attention, all promising riches for investors. The lack of concrete facts about new currencies has left investors vulnerable to hype and bad advice.

"The main reason why so many inexperienced individuals invest in bad cryptographic projects is because they listen to the advice of a so-called expert," said Larry Cermak, head of the analysis at The Block's website, a research site and cryptocurrency. Cermak said he does not own cryptocurrencies and has never promoted anyone. "They believe they can take this advice at face value even if it is often fraudulent, intentionally misleading or conflicting".

"EXPERT" REVIEWS

ICObench is one of the most popular websites that list and classify ICOs. Its pages are among the best results in any Google search for a specific cryptographic project and the word ICO, which makes it a key site for currency traders to appear in.

The evaluations on the website of about 15 months were generated by unpaid "experts" who have passed the process of control of the website, the CEO of ICObench, Maxim Sharatsky, told Reuters.

As of November 14, ICObench had 361 experts whose ratings are overseen by 34 site employees based in Moscow, London and throughout Asia, he said. ICObench had 1.7 million visits to its website between mid-October and mid-November, Sharatsky told Reuters.

The website earns through advertising and a premium model that allows cryptocurrency companies to pay between 1 and 40 bitcoins to be featured in newsletters, at the top of search results and elsewhere.

Seven ICObench experts told Reuters they were contacted by cryptocurrency companies or their public relations agents and offered money in exchange for an evaluation, although no one said they accepted such offers.

Tim Glaus, a co-founder of Alethena, a startup based in Switzerland, told Reuters that his company has been contacted by more than one person who said they could get credit ratings from the ICObench experts after Alethena listed the its offer of coins on ICObench. Markus Hartmann, another of Alethena's co-founders, wrote about his experience on the Medium blog in June, in what he called an effort to denounce "in fact investor fraud". Alethena manages a cryptocurrency rating platform that competes in some areas with ICObench.

Sharatsky told Reuters that ICObench does not sell ratings. When ICObench is informed that experts may have been paid for assessments, he said, investigates and removes reviews if they are contaminated.

"We have over 16,000 ratings on our platform," said Sharatsky. "Unfortunately, we had (had) incidents with sales (of) evaluations, and it's very bad, it's a problem for me, for our platform and for everyone involved."

FIVE STARS REVIEWS

Hartmann was contacted in late May on the Telegram messaging app encrypted by a user with the "Vagiz" handle, who offered to get Alethena's five-star ratings on ICObench for $ 500 each, with a 10% cut, according to the Telegram messages shown by Alethena Reuters.

He negotiated to pay $ 800 for two ICObench reviews and asked for the service to be delivered as quickly as possible, according to the messages. Less than 30 minutes after Vagiz has Hartmann messenger on Telegram: "Done, there are two 5 * :)"

Vagiz referred to two five-star ratings by ICObench experts Daniil Morozov and Anatoly Bordyugov, according to Alethena. These were the only new five-star ratings that appeared after Vagiz had written that it had been done, leading Alethena to believe that these were the reviews that had been organized, Glaus said.

Alethena said that he paid Vagiz 1.16 ether – another cryptocurrency – for the service, value for the price agreed upon at the time. Alethena has sent Reuters the screenshots of reviews that have been removed.

A few days later, Hartmann paid Vagiz a further 0.56 ether for a third evaluation by a reviewer named Jason Hung, according to the messages. "1 rate is made, Hung is by me," wrote Vagiz, providing screenshots of Hung's ratings.

Morozov, the ICObench expert, told Reuters he did not accept the payment for the rating and did not know Vagiz. Bordyugov, the other ICObench expert, has not responded to requests for comments made through his website and sent to LinkedIn. Hung, whose rating still appears on ICObench, also told Reuters that he did not accept the payment for the rating on Alethena and said he did not know Vagiz.

ICObench CEO Sharatsky told Reuters that, after Hartmann wrote about his experiences on Medium, he and his staff investigated Alethena's claims against Morozov and Bordyugov and found that both reviewers accepted money for positive ratings . As a result, ICObench stripped Morozov and Bordyugov of their expert status and took all their ratings from the site, Sharatsky said. He said the investigation found no evidence that Hung's rating was paid.

STALLA-WALL STYLE SEARCH

While cryptocurrencies are moving in the mainstream, some companies have begun to offer research in formats that mimic the style of traditional Wall Street companies.

Spero Research, based in Sydney, Australia, publishes reports on "very unbiased" and "very independent" cryptocurrency projects, according to Henry Sit, one of Spero's co-founders. Compare reviews with those written by traditional stock analysts.

However, the research is commissioned and paid directly by the projects that are under review, said Sit a Reuters. The company accepts payments in ether, but also accepts half of the total commission in the project currency, based on "how good the project is (and is) and how much we like it personally," Sit said. "There is certainly a conflict there," he acknowledged. He added that I hope he would not change his opinion just because the cryptocurrency project that has been reviewed is not in agreement with the conclusions of Spero.

Spero's reports have general disclosures. But they are not specific if a payment was made by the client whose project was evaluated, and if so, how much.

"I hope can be paid to publish research reports – depending on the circumstances, this may be from customers of Hope on the side of the purchase, or from suppliers of goods and currencies on the sale side," said disclosure on a report cryptocurrency published in August. "The Spero members can hold the cryptocurrency that is the subject of research and publication".

Sit would not say which of Spero's reports was financed by their subjects.

Some investors complain about these quid-pro-quo searches. "Paid reviews should not be disclosed, but should be banned," said Ric Edelman, head of asset management company Edelman Financial Services and investor in bitcoin and ether. "As long as they are not banned, disclosure should be as prominent as the title."

PROFESSIONAL COPYWRITERS

Even a series of "ICO agencies" has arisen. These promoters offer active and post-encrypted broadcasters on social media platforms such as Telegram, Reddit and Bitcointalk. Online chatters can attract investors, given the lack of conventional financial information available on cryptocurrencies.

Reuters contacted one of these agencies, TGE.company, to inquire about the services advertised on its website. An email received in response to the inquiry sent Reuters to a Telegram messaging account under the name "Papa Karlo." That user sent Reuters a price list that said the agency could organize 630 comments in a Telegram group at the rate of 45 comments a day for $ 800, payable over the digital currency. Reuters was not able to confirm the identity of Papa Karlo. The services offered were in line with a price list on the company website, with the words: "We create advertising through complex solutions that increase community activity".

"All messages will be relevant to the project and written by professional copywriters with extensive ICO experience," according to the price list that Papa Karlo shared with Reuters. The list offered comments from "dozens of high-level accounts" on Bitcointalk, as well as posts on Reddit, at prices ranging from $ 950 to $ 2,900.

Reddit told Reuters that its policies prohibit users from manipulating or creating multiple accounts to avoid restrictions and that any user found to be infringing these criteria is "acted appropriately". Telegram and Bitcointalk did not respond to Reuters comments requests.

Richard Foster, co-founder of the criptovalute startup Security Token Network in the UK, said in September he paid 50 individual dollars on the Fiverr freelancer network to help increase his participation in Telegram. The seller, following the "heroic_anthony" handle, assured Foster that users would not be fake, according to the messages seen by Reuters.

"And then 1,000 people were added within a minute," Foster told Reuters. "I'm crazy."

Foster said he complained to Fiverr and that the freelancer erased all the false followers. Fiverr reimbursed Foster's money and told him he would investigate the user, according to an e-mail seen by Reuters.

"The circumstances you described violate our terms of service," Fiverr spokesman Sam Katzen told Reuters. "When violations are reported, we take rapid action to investigate and manage the situation appropriately." Katzen refused to reveal if "eroica_anthony" had been banned from the site, or what the exact terms of the service were violated. Fiverr's terms of service, published on its website, prohibit the sale of "illegal or fraudulent services".

PAY FOR ITEMS

Another service offered by ICO agencies is paying writers to publish stories that mention their customers or refer to their clients' websites, according to interviews with four agencies and six e-mail offers seen by Reuters. Prices range from a minimum of $ 100 to a maximum of $ 10,000, according to interviews and messages.

A cryptocurrency data company showed Reuters an e-mail he had received from a person who offered an article on the Forbes.com corporate website for $ 2,500. The post, which would have the name and website of a company, could be delivered between six and eight weeks, the promised e-mail. The e-mail included a coupon for a discount of $ 500.

Forbes.com stated in a written statement to Reuters that its editorial guidelines explicitly prohibit contributors from receiving payments in exchange for stories. Forbes did not share its editorial guidelines with Reuters.

Earlier this month, Forbes removed a post under the signature of Harold Stark, originally published at the end of last year, which referred to a cryptocurrency issuer, after Reuters had applied for it. In a statement issued to Reuters this month, Forbes said he had discovered at the beginning of 2018 that Stark violated its editorial guidelines. It is not clear if Stark has accepted payments for his post on Forbes. Stark has not responded to a comment request on LinkedIn.

"We have interrupted our relationship with him and removed all his content from our site at that time," says the statement. "Due to a technical problem, its previous content has reappeared, but we have removed the content once again."

Reporting by Anna Irrera and Elizabeth Dilts in New York
Editing by Neal Templin and Bill Rigby

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