The Generalist - Sardine: Fintech’s Great Detective

Friends,

There’s a type of crypto scam that’s extremely hard to detect.

It has a rather brutal name, too: “pig butchering.”

While I’ll save the details of how this type of fraud works for today’s piece, the basic premise is this: target someone thinking about buying their first crypto, slowly “fatten” them up, and take them for as much as possible.

Many have lost their life savings to this practice – adding to the $14 billion lost to crypto crimes.

Even companies that know this type of scam is happening on their platform often feel powerless to stop it. How can you tell when someone is being manipulated by an external party? What clues should you be looking for? And how can you use those to make sure it doesn’t happen to the next person?
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The answer is becoming increasingly obvious: use Sardine.

The fraud prevention startup has grown like wildfire thanks to its incredible ability to sniff out scams – a kind of detective for the digital age. Sardine’s abilities have made it immediately valuable. Perhaps even more interestingly, though, they’ve given the startup the platform to become a true payments challenger.

To understand how these scams work, how to stop them, and why Sardine might become a payments giant, jump into today’s piece:

This piece was written as part of The Generalist's partner program. You can read about the ethical guidelines I adhere to in the link above. I always note partnerships transparently, only share my genuine opinion, and commit to working with organizations I consider exceptional. Sardine is one of them.

Brought to you by Sardine

If you’re a fintech or crypto company, you should be using Sardine. It is that simple.

The fraud prevention and payments provider protects your customers from malicious scammers while improving your conversion rates. Companies like FTX, Brex, AtoB, MoonPay, Autograph, and others use Sardine to stop fraud and increase revenue.
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​To get started, book a demo here. By doing so, you stand to cut fraud by 300% and unlock $500,000 in operational savings.

Sardine: Fintech’s Great Detective

Actionable insights

If you only have a few minutes to spare, here's what investors, operators, and founders should know about Sardine.

• Beware the butcher. A new kind of fraud is taking hold: “pig butchering.” The gruesomely monikered scam involves manipulating someone into buying cryptocurrency, then transferring it to an external account to be “managed.” When it comes time to realize profits, the crypto is gone. Not only is this type of fraud brutal, it’s challenging to detect.
• The Sherlock of scams. Sardine has built a defense against such bad actors. Using behavioral and device data, the startup can sniff out scammers. Among other data sources, Sardine observes how users scroll, click, and type to assess their risk.
• An ideal team. Soups Ranjan built fraud systems at Coinbase and Revolut. The Sardine CEO deeply understands how financial crimes are perpetrated and what is needed to stop them. He’s joined by Aditya Goel and Zahid Shaikh – fintech obsessives that have worked at Revolut, PayPal, and JP Morgan Chase.
• Powering payments. From the beginning, Sardine’s co-founders sought to build more than a fraud prevention platform. Instead, they wanted to use this service to provide a game-changing payments processor. Today, Sardine handles payments for crypto companies and neobanks, using their fraud detection suite to improve conversion rates.
• True network effects. The company wants to create a fraud directory that compiles data from the industry and which companies continue to update. For example, if an email address is associated with fraud on Chase, a neobank like Revolut will see the information has been flagged. This is a product with obvious network effects.

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Dejan Davidovich knew what was happening. He just didn’t know how to stop it.

In 2019, Davidovich’s life descended into a nightmare. The COO of European cryptocurrency exchange Kriptomat had been summoned to court, questioned at the Estonian airport, and inundated with customers threatening legal action. Nearly all stemmed from the same source: a ruthless scam.

It worked something like this:

Imagine you’re browsing Facebook one day when you come across what looks to be a news article. (It is likely an advertisement.) In it, a novice investor details the life-changing money they’ve made investing in cryptocurrency. They attribute their profits to the help of a wealth management firm that specializes in the sector, linked in the piece.

Intrigued, you click through to the firm’s website. You might be especially predisposed to this if you’re struggling financially; a quick windfall might make all the difference in your life. The wealth management firm asks you for a few simple pieces of information: your name, email address, and phone number.

A few minutes after you register, you get a call. A representative from the wealth management firm notes they received your application and would be happy to kickstart your crypto investing journey. To get started, would you mind downloading remote access software? TeamViewer or AnyDesk is fine – the important part is that the representative can take control of your screen, helping you through the pesky onboarding process cryptocurrency exchanges demand.

You comply. The representative seems knowledgeable and helpful, and navigating a new platform is intimidating. It would be so easy to make a mistake.

With remote access set up, you watch as the representative whips through the sign-up process on an exchange called Kriptomat, occasionally pausing to explain something or ask for information. You share your address, bank details, and identifying information. If all goes smoothly, this takes a few minutes, after which the fun part begins. Now that you’re registered, you can pick a cryptocurrency to invest in. Perhaps bitcoin or ether? The representative tells you those are good bets, but it’s important to start small. You can always add more over time.

You decide to invest €300 in bitcoin. Not a lot, but not a little.

A few minutes later and the bitcoin hits your account. The representative congratulates you: you’re officially a cryptocurrency investor! The only thing left is to transfer the bitcoin to the wealth manager’s wallet address. That way, they can work on growing the value of your holdings. Don’t worry; you can see your crypto on the wealth manager’s handy online platform.

One might think: this is where it ends. The crypto has been sent into the ether; the scam is complete. Often, that’s not the case. Instead, it extends for months, growing increasingly brutal.

When you check your wealth management account a week later, you see that your funds have grown significantly. The firm is doing an exceptional job, and everything you read about the money to be made is proving to be true. Impressed by your early returns, you decide to invest more. Your representative is happy to help, guiding you through the purchase flow and taking over to handle the annoying process of sending bitcoin from one wallet to another.

In the months that follow, you keep investing. Why wouldn’t you when the returns are this good? Hundreds of euros turn into thousands and tens of thousands. Soon, you’ve pushed your life savings into crypto in the confidence that whatever you put in, you’ll get back tenfold. After all, you’ve seen it happen.

After a time, you decide to take out some of your profits. You’ve done so well and could use a little liquidity. Only then does the hammer drop.

When you email your representative, you get no response. When you call, the line is disconnected. When you try to withdraw from the wealth management website, nothing happens. When you try again, you’ve been locked out.

Everything you invested has gone. Everything you earned was a lie. You have been “pig butchered,” as the practice has come to be known. Fattened up and slaughtered.

For many, this is a crippling moment. It is a confusing one, too. Who is to blame? Bewildered by what has transpired, many misdirect their anger at the exchange rather than the fabricated wealth management firm. Kriptomat has stolen their money, they decide, not the kind representative that had been so helpful. It probably doesn’t help that there is no longer a wealth advisor to aim allegations, while Kriptomat’s customer service tries to help. The latter absorbs the pain caused by the former.

This is true in myriad ways. Kriptomat incurred costs beyond customer ire and significant aggravations to the lives of executives like Davidovich. Partners began questioning Kriptomat’s integrity, regulators considered fines, and banks blocked connections to the exchange. “It’s not just the customers that get affected,” Davidovich noted, “The business gets affected, too.” A once-promising business suddenly seemed in jeopardy.

What was Davidovich to do?

The world of fraud is truly crazy. I think you’ll enjoy this one.
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See you Sunday,

Mario