Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ====== Exit Scam ====== An Exit Scam (also known as a 'Rug Pull' in the crypto world) is a particularly nasty type of fraud where the promoters of a project raise money from investors and the public, only to vanish with the funds. Imagine a highly anticipated new tech gadget company that collects millions in pre-orders, but one day, its website goes dark, its social media accounts are deleted, and the founders are nowhere to be found. That’s an exit scam. This scheme preys on the excitement and hype surrounding new ventures, especially in lightly regulated areas like [[cryptocurrency]] and crowdfunding. The perpetrators build trust and create a sense of urgency, persuading people to invest in a promise. Once they've collected a substantial amount of capital, they abruptly cease operations and disappear, leaving investors with worthless tokens or no product and no way to recover their money. It's the digital equivalent of a magician's vanishing act, but instead of a rabbit, it's your investment that disappears. ===== How an Exit Scam Unfolds ===== Exit scams aren't random acts; they follow a distressingly common playbook. Understanding the stages can help you recognize the trap before you fall into it. ==== Stage 1: The Hype Machine ==== The first step is to create a buzz. Scammers will build a professional-looking website, publish a slick (but often vague) [[white paper]], and flood social media with incredible promises. They might promise revolutionary technology, guaranteed high returns, or a product that will change the world. They often hire social media influencers to promote the project, lending it a false sense of legitimacy and creating a powerful sense of [[FOMO]] (Fear Of Missing Out) among potential investors. ==== Stage 2: The Collection Plate ==== Once the hype is at its peak, the fundraising begins. This can take many forms: * An [[Initial Coin Offering (ICO)]] or token sale for a new cryptocurrency. * A crowdfunding campaign on a popular platform. * Pre-orders for a physical or digital product. Investors, caught up in the excitement and trusting the polished marketing, pour money into the project, hoping to get in on the ground floor of the next big thing. ==== Stage 3: The Great Escape ==== This is the final, brutal act. After the scammers have raised a significant sum, they pull the plug. They transfer the collected funds into anonymous accounts, shut down the website, delete all social media profiles, and cease all communication. They effectively become ghosts, leaving a trail of angry investors and broken promises. Recovery of the funds is often impossible due to the anonymous and cross-border nature of these scams. ===== Red Flags and How to Spot Them ===== A healthy dose of skepticism is your best defense. Value investors are detectives, and looking for clues is part of the job. Here are the tell-tale signs of a potential exit scam: * **Anonymous Team:** Legitimate projects are proud of their teams. If the founders are anonymous, use pseudonyms, or have no verifiable professional history (like a [[LinkedIn]] profile), it's a massive red flag. Why would you trust your money with people who won't even tell you who they are? * **Guaranteed High Returns:** In the world of investing, //nothing// is guaranteed. Promises of "10x returns, risk-free!" are the classic bait used by fraudsters. Real investments involve risk and rely on sound business fundamentals, not magical money-making formulas. * **Vague or Copied White Paper:** A project's white paper or business plan should be detailed, specific, and professional. Scammers often use documents that are full of buzzwords but lack substance, or worse, are plagiarized from other legitimate projects. * **Intense Pressure to Invest:** Scammers create a high-pressure environment to prevent you from doing your [[due diligence]]. Limited-time offers, countdown clocks, and warnings that you'll "miss out" are designed to make you act impulsively. A solid investment opportunity will still be solid tomorrow. ===== A Value Investor's Perspective ===== The entire concept of an exit scam is poison to the value investing philosophy. Value investing, as taught by legends like [[Benjamin Graham]], is about a disciplined, research-based approach to buying wonderful companies at fair prices. It is the //opposite// of speculating on hype and anonymous promises. An exit scam is a bet on a story, not a business. A value investor, by contrast, focuses on tangible realities: a company's earnings, its [[balance sheet]], its competitive advantages, and the quality of its management. When you invest in a company like Coca-Cola, you can analyze decades of financial history and visit a management team you can identify. When you "invest" in a project run by "CryptoKing88" on the internet, you have none of that. The ultimate defense against an exit scam is adhering to the principle of [[margin of safety]]. This means investing with a buffer that protects you from errors in judgment and unforeseen problems. A project with anonymous founders, no track record, and a business plan built on thin air has no margin of safety. It's a 100% gamble. By sticking to understandable businesses with transparent leadership and a proven history, you automatically sidestep the shadowy corners of the market where exit scams thrive.