State Securities Regulators Warn of Risks of Cryptocurrency and Digital Asset Fraud

WASHINGTON, D.C. (January 10, 2022) – The North American Securities Administrators Association (NASAA) today released its annual list of top investor threats and urged caution before purchasing popular and volatile unregulated investments – especially those involving cryptocurrency and digital assets. NASAA also announced guidance for investors, including steps to take to protect from fraud in the new year.

“The most common telltale sign of an investment scam is an offer of guaranteed high returns with no risk. It is important for investors to understand what they are investing in and with whom they are investing,” said Melanie Senter Lubin, NASAA President and Maryland Securities Commissioner. “Education and information are an investor’s best defense against investment fraud.”

The top threats to investors were determined by surveying North American securities regulators to identify the most problematic products, practices or schemes. The following were cited most often by state and provincial securities regulators:

  1. Investments tied to cryptocurrencies and digital assets,
  2. Fraud offerings related to promissory notes,
  3. Money scams offered through social media and internet investment offers and,
  4. Financial schemes connected to Self-Directed Individual Retirement Accounts.

“By far, NASAA’s securities regulators revealed that investments related to cryptocurrencies and digital assets is our top investor threat,” said Enforcement Section Committee Co-Chair Joseph P. Borg, Alabama Securities Commission Director. “Stories of ‘crypto millionaires’ attracted some investors to try their hand at investing in cryptocurrencies or crypto-related investments this year, and with them, many stories of those who bet big and lost big began appearing, and they will continue to appear in 2022.”

Many of the fraud threats facing investors today involve private offerings, as federal law exempts these securities from registration requirements and preempts states from enforcing important investor protection laws. Borg added, “Unregistered private offerings generally are high-risk investments and don’t have the same investor protection requirements as those sold through public markets.”

Digital assets do not fall neatly into the existing investor regulatory framework, and it may be easier for the promoters of these products to fleece the public. All investments carry the risk that some, or all, of the invested funds could be lost.

“Before you jump into the crypto craze, be mindful that cryptocurrencies and related financial products may be nothing more than public facing fronts for Ponzi schemes and other frauds,” said Enforcement Section Committee Vice-Chair Joseph Rotunda, Texas State Securities Board Enforcement Division Director. “Investments in cryptocurrency trading programs, interests in crypto mining pools, crypto depository accounts and securitized tokens should be seen for what they are: extremely risky speculation with a high risk of loss.”

Information about each of the 2022 investor threats and contact information for all state and provincial securities regulators can be found on NASAA’s Fraud Center.

Investors are urged to practice the following tips to identify and avoid investment scams:

  1. Anyone can be anyone on the Internet. Scammers are spoofing websites and using fake social media accounts to obscure their identities. Investors should always take steps to identify phony accounts by looking closely at content, analyzing dates of inception and considering the quality of engagement. To ensure investors do not accidently deal with an imposter firm, pay careful attention to domain names and learn more about how to protect your online accounts.
  2. Beware of fake client reviews. Scammers often reference or publish positive, yet bogus testimonials purportedly drafted by satisfied customers. These testimonials create the appearance the promoter is reliable – he or she has already earned significant profits in the past, and new investors can reap the same financial benefits as prior investors. In many cases, though, the reviews are drafted not by a satisfied customer but by the scammer. Learn how to protect yourself with NASAA’s Informed Investor Advisory on social media, online trading and investing,
  1. If it sounds too good to be true, it probably is. Bad actors often entice new investors by promising the payment of safe, lucrative, guaranteed returns over relatively short terms – sometimes measured in hours or days instead of months or years. These representations are often a red flag for fraud, as all investments carry some degree of risk, and the potential profits are typically correlated with the degree of risk. Learn more about the warning signs of investment fraud.

NASAA recommends investors independently research registration of investment firms. They should not use hyperlinks provided by the parties and instead contact their state securities regulator, search the SEC’s Investment Adviser Public Disclosure website or FINRA’s BrokerCheck platform. Investors should be aware that scammers may misappropriate the CRD numbers of registered firms and individuals. Investors should contact their regulator if they suspect the firm is engaging in this type of tactic.

Individuals offering investments are obligated to truthfully disclose all material facts, and they must disclose the risks associated with each product. On the other hand, bad actors will often minimize or conceal risks, and use hyperbole to tout profits and payouts. Investors should pay attention to these details, as they can provide clues about the potential illegitimacy of a scam.

Bad actors may be impersonating licensed parties by using phony websites that place viruses or malicious software on victim’s computers. Investors should continue to observe best practices for cybersecurity. The FDIC has issued guidance to assist consumers in protecting themselves from cyber-attacks.

About NASAA:

Formed in 1919, NASAA is a nonprofit association of state, provincial and territorial securities regulators in the United States, Canada and Mexico. NASAA has 67 members, including the securities regulators in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands with a shared mission of protecting investors from fraud and abuse. For more information, visit: www.nasaa.org.

 

 

 

 

For More Information:

Jeanne Hamrick | Director of Communications
202-737-0900

Karen Grajales | Manager, Communications & Investor Outreach
202-737-0900