Thursday, September 02, 2021 / 02:30 PM / US SEC
Office for Investor Education and Advocacy / Header Image Credit: Hedge Week
The SEC’s Office of Investor Education and Advocacy
(OIEA) and Division of Enforcement’s Retail Strategy Task Force (RSTF) remind
investors to watch out for investment schemes involving digital assets and “Crypto.”
Fraudsters continue to exploit the rising popularity
of digital assets to lure retail investors into scams, often leading to
devastating losses. “Digital assets” include crypto-currencies, coins,
and tokens such as those offered in so-called initial coin offerings
(ICOs). Investors may be less skeptical of investment opportunities that
involve something new or “cutting-edge”, or may get caught up in the fear of
missing out (FOMO). For example, some investors may have FOMO, given the
rise in price of some digital assets in recent years, that they will miss an
opportunity to become very wealthy. If you are considering a digital
asset-related investment, take the time to understand how the investment works
and to evaluate its risks. Look for warning signs that it may be a scam.
The SEC brought charges in a $2 billion
Bitcoin-related investment scam. In SEC v. BitConnect, the SEC took
enforcement action against the perpetrators of one of the largest
Bitcoin-related Ponzi-like schemes. According to the SEC, the defendants
collected approximately 325,000 Bitcoin, worth approximately $2 billion at the
time, from retail investors worldwide through a platform that encouraged
investors to lend their Bitcoin to BitConnect. The founder of the
platform allegedly lured investors with false promises of profits to be
generated by a purported proprietary Bitcoin trading “bot” and secretly paid a
network of promoters around the world for their efforts to promote the lending
platform through “testimonial-style” YouTube videos and other social media in
multiple countries. The SEC also alleges that investors were rewarded for
recruiting new victims through a pyramid scheme-like referral program.
The SEC’s complaint notes that the platform’s website represented: “Investing
on BitConnect platform, as you will find, is a safe way to earn a high rate of
return on your investment without having to undergo a significant amount of
risk”. The platform allegedly paid investor withdrawals out of incoming
investor funds and did not trade investors’ Bitcoin consistent with its
representations, leading the platform to collapse and investors to lose massive
amounts of money.
When considering an investment opportunity, be
cautious if you spot any of these red flags of fraud:
- Guaranteed” high investment returns. Promises of high investment returns
with little or no risk are a classic warning sign of fraud. Fraudsters
may post fabricated historical returns on their websites showing high
investment returns. - Unlicensed/unregistered sellers. Unlicensed, unregistered sellers commit
much of the securities fraud targeting retail investors in the U.S. Check
out the background (including license and registration status) of anyone
offering you an investment in securities using the search tool on Investor.gov. - Skyrocketing account values. Depictions of investment accounts rapidly
increasing in value and providing large returns are often fake. This is a
tactic fraudsters use to entice investors with the prospect of great wealth. - Sounds too good to be true. If an investment “opportunity” sounds too
good to be true, it probably is. Remember that the potential for high
investment returns usually involves high risk. - Fake Testimonials. Also, never rely solely on testimonials in making an
investment decision. Fraudsters sometimes pay people – for example,
actors to pose as ordinary people turned millionaires, social media
influencers, and celebrities – to tout an investment on social media or in a
video.
Before you hand over your money, verify that the
individuals and firms offering an investment in securities are
licensed/registered using the search tool on Investor.gov. Carefully
review all materials about any investment opportunity and ask questions.
Learn more about investments involving digital assets, including so-called
ICOs, on Investor.gov, where you can find tips on investing wisely and avoiding
fraud.
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