A crackdown on cryptocurrency-related scams is being coordinated by state regulators across the country, as con artists play up the popularity of Bitcoin.
Various enforcement actions, including some taken in provinces of Canada, have included cease and desist orders involving companies with names like Cryptocashback, Cryptosecure, DasCoin, ThinkCoin, Ubcoin, Leverage and Krios.
The North American Securities Administrators Association — a group of state securities regulators who work to protect investors — said Monday that 70 investigations have opened up relating to initial coin offerings and cryptocurrency programs. There are 35 pending and completed enforcement actions nationwide since the beginning of May.
Millennials are viewed as potential targets, as are consumers who are embracing products related to financial technology, or fintech.
Regulators said millennials are both most likely to use fintech products (84%) and most at risk of fraud relating to some fintech schemes (41%), according to a survey released by the North American Securities Administrators Association in February.
ICOs and cryptocurrencies are viewed as high risks for fraud.
Initial coin offerings are fund-raising programs that could be used to kick off a new cryptocurrency effort. But some of the ICOs can be nothing but frauds where con artists keep the cash.
Even offerings that are legitimate should be viewed as highly risky.
“Not every ICO or cryptocurrency-related investment is fraudulent, but we urge investors to approach any initial coin offering or cryptocurrency-related investment product with extreme caution,” said Joe Borg, president of the the North American Securities Administrators Association.
Why are people ponying up money after repeated warnings about the dangers of ICOs?
“People are afraid to miss out on the latest and the greatest,” Borg said in a press conference on Monday in Washington, D.C.
Many times, retirees and others can fall for these schemes because they’re trying to make up for lost time and rebuild underfunded nest eggs, said Borg, who is the Alabama Securities Commission Director.
Some consumers who never recovered from the stock market crash in 2008-09 can be lured into sending money — even using digital currency — on nothing but the promise of quick, sizable returns.
Regulators said “Operation Cryptosweep” has uncovered roughly 30,000 domain names relating to cryptotocurrency. Many were registered in the past year as the price of Bitcoin went bonkers.
Bitcoin — which had been valued around $1,400 in early May 2017 — rose above $19,000 by December.
Bitcoin has since dropped significantly in value to around $8,400 on May 21 but the buzz continues to build.
In some cases, fraudulent websites have used photos of popular personalities. The Texas State Securities Board shut down one initial coin offering site in early May that regulators claim used photos of Jennifer Aniston and other celebrities as part of fake endorsements.
Joe Rotunda, NASAA Enforcement Section vice chair and director of Enforcement for the Texas State Securities Board, said fraudsters often use false claims that a well-known public figure or a celebrity is associated with an initial offering as a way to encourage potential investors to send money.
One fraudulent effort, he said, even used a photo of U.S. Supreme Court Justice Ruth Bader Ginsburg to sell cryptocurrency.
Some signs of a scam: Promoters promise lucrative returns tied to cryptocurrencies but manipulate photographs, possibly using stock photos available elsewhere online, in seemingly professional, polished presentations online.
Christopher Gerold, NASAA Enforcement section chair and New Jersey Securities bureau chief, said state regulators used some old-fashioned detective work, including undercover tactics, to try to address the proliferation of cryptocurrency schemes.
Gerold said most, if not all, promoters do not have the proper licenses for selling such investments.
Michigan consumers are encouraged to contact the state Securities and Commercial Licensing Bureau, which can run a registration check on any investment adviser, broker-dealer, professional, or product. Investors can call 517-241-6345 or visit www.michigan.gov/securities.
Contact Susan Tompor: firstname.lastname@example.org or 313-222-8876. Follow Susan on Twitter @Tompor.