State and Provincial Securities Regulators See Uptick in Fraudulent Activity

WASHINGTON, D.C. (August 7, 2019) – With news surrounding the surging price of cryptocurrencies such as bitcoin and a new product backed by Facebook poised to enter the market, investors and con artists alike have returned to cryptocurrency-related investment products looking for quick profits.

State and provincial securities regulators are seeing an uptick this year in solicitations in potential crypto-related frauds. The North American Securities Administrators Association (NASAA) today announced that through its ongoing Operation Cryptosweep initiative, state and provincial securities regulators have opened 130 new investigations into questionable cryptocurrency-related investment offerings and have 35 pending or completed enforcement actions since the beginning of this year.

In April 2018, NASAA organized a task force of its member state and provincial securities regulators to begin a coordinated series of investigations into initial coin offerings (ICOs) and other cryptocurrency-related investment products. Since then, this coordinated regulatory focus has resulted in 85 pending or completed enforcement actions involving ICOs or cryptocurrency-related investment products and approximately 330 inquiries or investigations by securities regulators from U.S. states and Canadian provinces.

“Recent headlines of potentially new cryptocurrency products and the near tripling in value of some cryptocurrencies and the sharp increase in market capitalization for all cryptocurrencies are again creating an environment that attracts white-collar criminals, bad actors, and other promoters of illegal and fraudulent securities schemes,” said Michael S. Pieciak, NASAA President and Vermont Commissioner of Financial Regulation. “Investors should be mindful of the hype and be aware of the risks when considering whether to jump into cryptocurrency-related investment products.”

To help raise investor awareness, NASAA is releasing the third in its “Get in the Know” video series, featuring common crypto investment schemes and how to guard against becoming a victim. The video also outlines the common concerns investors should consider before investing in any offering containing cryptocurrency, including:

• Volatility: Cryptocurrency markets are highly volatile, making them unsuitable for most investors looking to meet long-term savings or retirement goals.
• No recourse: Cryptocurrency and many crypto-related investments are subject to little regulatory oversight, and there may be no recourse should the cryptocurrency disappear due to fraud or a cybersecurity breach.
• Untraceable: Cryptocurrency or crypto-related investments only exist on the internet. Issuers can be located anywhere in the world, so it may be impossible to trace and recover lost funds through the courts.

Pieciak points out that not every cryptocurrency-related investment offer is a fraud, but it is important for individuals and firms selling these products to understand that state and provincial laws or regulations may apply to these sales, especially securities laws.

“As with any investment opportunity, be cautious when dealing with promoters who claim their offering does not have to be registered with securities regulators. Investigate independently before you invest and contact your state or provincial securities regulator with any concerns before parting with your hard-earned money.”