Exit scam

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An exit scam is a confidence trick where an established business stops shipping orders while continuing to receive payment for new orders. If the entity had a good reputation, then it can take some time before it is widely recognized that orders are not shipping, and the entity can then make off with the money paid for unshipped orders.[1] Customers that trusted the business do not realize that orders are not being fulfilled until the business has already disappeared.

Conversely, exit scams can also be perpetrated by purchasers if, while secretly planning to close their business and/or abscond, they procure goods and services for which they do not intend to pay. However, these sort of incidents are less common. Moreover, it is not uncommon for a procurer to go out of business due to an insolvency they did not wish to occur. Such insolvencies are not typically considered to be criminal acts, let alone exit scams, unless there is clear evidence of bad faith - e.g. if it can be proven the business avoided paying vendors even though it was solvent before closing down and/or it became insolvent as a result of embezzlement or other such behaviour.

Individual vendors often reach a point of reputation maturity whereby they have sold sufficient product to have accumulated both significant reputation and escrowed funds, that many may choose to exit with those funds rather than compete at the higher-volume higher-priced matured product level.[2] For individual vendors, exit scams are often a viable scheme when dealing with any sort of physical product (for which buyers must reasonably expect to wait before receiving orders, thus often granting the perpetrator a considerable grace period before the scam can no longer be plausibly denied) compared to digital, virtual and other intangible goods which buyers will generally expect to be delivered within a very short time after remitting payment.

Exit scams can be a tempting alternative to a non-fraudulent shutdown of illegal operations if the operation was inevitably going to shut down anyway for other reasons. If an illegal entity thrives by selling and/or facilitating the sale of illicit drugs, for example, it is at constant risk of being shut down by the authorities, whereas if the operators perform an exit scam, there are much better prospects for the perpetrators to both keep their profits and avoid eventual prosecution.

In illegal darknet markets, exit scams are frequently perpetrated. While the most common such schemes are perpetrated by individual vendors who receive payment for product they have no intention of shipping, such scams have also been perpetrated both by individual procurers who obtain product which they have no intention of paying for and by operators and/or administrators of these markets who, by shutting down an entire market, can abscond with whatever currency the market was holding on behalf of buyers and/or sellers in escrow at the time of the shutdown. Regardless of who is perpetrating the scam, if the cheated parties are themselves knowingly participating in illegal activities it is not usually a viable option for them to notify law enforcement.[1] The best known examples are online sellers where the buyer does not know the real identity or physical location of the scammer and therefore has little recourse.

Examples[edit]

The darknet market (online black market) Evolution was cited as the biggest exit scam yet as of 2016. The administrators apparently made off with $12 million in bitcoin, which was held in escrow on the marketplace.[3] The WSM (Wall Street Market) exit scam of 2019 had $14.2 million worth of cryptocurrencies stolen, just before the site was seized by the authorities.[4]

References[edit]

  1. ^ a b Christian, Jon (2015-02-04). "The 'Exit Scam' Is the Darknet's Perfect Crime". Motherboard. Retrieved 2019-12-12 – via Vice.com.
  2. ^ Janetos, Nick (January 2017). "Reputation Dynamics in a Market for Illicit Drugs" (PDF): 18. Archived from the original (PDF) on 3 February 2017. Retrieved 2 February 2017. Cite journal requires |journal= (help)
  3. ^ Stone, Jeff (2015-03-23). "Evolution Downfall: Insider 'Exit Scam' Blamed For Massive Drug Bazaar's Sudden Disappearance". International Business Times. Retrieved 2019-12-12.
  4. ^ Cimpanu, Catalin (May 2, 2019). "Law enforcement seizes dark web market after moderator leaks backend credentials". Zero Day. Retrieved December 12, 2019 – via ZDNet.com.