Last summer, Cindy Gallop flew to Amsterdam to meet an investment manager who had offered her £10m in equity financing to help her grow her ethical adult content business. She knew him as Matthias from Liechtenstein-based European Holdings Investment, who was representing a real estate developer turned investor, and charging a $500k commission in cryptocurrency for his services.
But, after some basic checks that prompted her to contact a financial crime expert, it soon became clear that Matthias wasn’t who he said he was.
‘Matthias’ is one of the operators of a crypto scam that’s persuaded unsuspecting entrepreneurs to part with hundreds of thousands of dollars in exchange for nothing.
The scam — first reported by The Register in early 2023 after gaming startup founder Ahad Shams went public on Twitter after he lost $4m to the scheme — is a pretty simple one in principle. Someone poses as the representative of a willing investor and then persuades the victim to transfer substantial amounts of money into a crypto wallet, which the scammer then drains, never to be seen again.
Sifted has since spoken to seven entrepreneurs who’ve been targeted between 2021 and the end of 2023 — two of whom lost significant amounts of cash to the scam — as crypto criminals exploit founders in increasingly urgent need of funding.
“A sickening ordeal”
Gallop, a former advertising exec turned sextech founder, tells Sifted that she was immediately sceptical when ‘Matthias’ asked her to move $500k into a crypto wallet.
“The moment he said that I knew what the scam was,” says Gallop. “They would just have a way to drain it magically and that’s what this is all about.”
But others didn’t make such a lucky escape.
In March 2023 a proptech founder who spoke to Sifted, but wishes to remain anonymous, was also contacted by someone calling themselves Matthias from European Holdings Investment.
After a meeting in a Milan restaurant with two of Matthias’s colleagues, and being sent a passport scan of the supposed investor, he was persuaded to part with £200k — commission for what he was told would be a £2m investment into his company. Almost as soon as he moved the money into their crypto wallet, it was gone forever.
“The investor they gave us sounded like a legit investor, we got his passport details and his address and his utility bills,” the founder says. “The scam itself is a sickening ordeal to go through… It’s just left a big hole, a £200k hole, that we didn’t have in the first place.”
“Naive”
In this difficult economic climate, an offer of capital can be intoxicating and prompt founders to drop their guard.
“Looking back, we were just naive to it all, a bit blinded by the opportunity really,” says the proptech founder.
Another founder that Sifted spoke to, who’s working on a crypto startup, lost $220k in a similar scam last January. He says that not all founders are well-versed in the schmoozy art of raising capital.
“I really know my stuff technically and I thought I was the last person that could fall for a scam like this,” he tells Sifted. “They wanted to meet, they were gonna give us about $2m but slightly unusually they wanted kickback in crypto… Now we were a little bit green to this because we’d never raised capital, so we thought this was a little bit strange but there seems to be a plausible explanation.”
A smart scam
A lack of founder familiarity with the fundraising process is compounded by what appears to have become a well-polished scam.
Therese Gustafsson, founder of a bootstrapped cybersecurity startup, met someone who called himself “Richard” and claimed to represent a family office, at a restaurant in Milan in 2023.
“This Richard had a very sophisticated behaviour about him, very secretive in a way,” she tells Sifted. “Very good at leading the conversation out of certain answers.”
Another founder, who wanted to remain anonymous, says he was contacted by two groups who appeared to be running competing scams. He flew from North America to meet one set of supposed investors in Valencia, and then another in Rome in 2022.
“He had proper business cards, we looked up their articles of incorporation, everything seemed legit… At first it seemed legit,” the founder said of the group in Rome. “I told him I’d met another investor group in Valencia and they were proposing a very similar thing with crypto and their faces kind of turned white.”
Both of these founders, like Gallop, pulled out of the process before losing money, but it’s likely plenty of founders haven’t been as savvy.
Henry Wiliams — head of investigations at Themis, a startup which helps individuals and companies deal with financial crime — helped Gallop identify that she was dealing with scammers, but says there are probably many more cases out there.
“A lot of people in the startup space are involved in crypto, so there’s a plausibility to it; crypto itself isn’t the red flag it used to be,” he says. “It’s clearly very well thought through and the fact there’s so much theatre behind it, they’ve probably done it a fair few times before and got away with it.”
Gallop says she wants her story out there so others don’t fall (or almost fall) for the same trick.
“This destroys people’s trust,” she says. “These guys can continue this scam, as long as founders are too embarrassed to speak up and they carry on scamming people.”
