United States SEC Warns Investors About Fraudulent Crypto Investing Websites
The United States Securities and Exchange Commission (SEC) has issued an investor alert against fraudulent digital asset trading websites.
The SEC and CFTC released the joint alert on April 24. The alert advises investors to be wary of websites claiming to operate advisory and trading businesses. The SEC published the alert through their Office of Investor Education and Advocacy, while the CFTC published the alert through the Office of Customer Education and Outreach.
According to the warning, staff from the SEC and CFTC have recently spotted crypto-based investment schemes where scammers advertise “digital asset or cryptocurrency advisory and trading businesses.” Scammers claim investors can earn lucrative returns – like 20% to 50% – by investing in these businesses today.
The United States Attorney’s Office for the District of Oregon just announced an indictment against two Nigerian man accused of running such a scheme. However, the SEC and CFTC claim plenty of similar schemes continue to exist today.
How These Crypto Scams Work
The scammers claim to have a unique insight into crypto trading systems or mining farms. Investors who deposit money today can earn enormous returns with minimal risk.
Like most investment schemes online that promise big returns, this scheme is a total fraud. There are no returns and no real business.
At best, you’re investing in a Ponzi scheme, where the returns of older investors are paid by the deposits of new investors. At worst, the scammer is disappearing with your money immediately after investors make a deposit.
Six Red Flag Signals Indicating A Crypto Company Is A Scam
The report from the SEC and CFTC summarized six red flag signals indicating fraudulent activity, including:
- Guaranteed returns and risk-free investment, including returns of 20% to 50% with no risk of losing your initial investment
- Complex jargon and opaque or confusing language designed to disorient investors and conceal inconsistencies
- Unsolicited sales pitches from unknown sellers, including fraudsters that use fake names, misleading photos, and fake contact information designed to look like real US contact information
- A ‘too good to be true’ appearance
- Pressure to buy or invest in a scheme right now
- Unlicensed sellers, including a business that is not registered or licensed with Investor.gov
The CFTC and SEC issued the alert after the 13-count indictment of two men running a bitcoin investment scheme. The two Nigerian men launched a scheme advertising return as high as 50%.
Investors were told they would be able to withdraw their money instantly with zero risk. The defendants are also accused of telling victims to deposit more bitcoins in order to receive the proceeds of their investments. None of the money was ever returned to the victims.
The scam was run through three main websites, including WealthCurrency.com, BoomCurrency.com, and MerryCurrency.com.
As cryptocurrency has risen in popularity, the SEC and CFTC have taken a more active approach to regulate or at least monitoring the space. In spring 2018, the SEC created a fake ICO promising huge returns to investors, for example, as a creative way to warn investors of participating in unregistered ICOs. Any investors who followed through with the ICO received a warning from the SEC about the dangers of investing in shady crypto companies.
How To Avoid Falling Victim To Crypto Scams
The SEC recommends that investors check the registration status of all companies before sending money to a company.
You can check any company’s investment license and registration status on Investor.gov, for example.
The agency also recommends monitoring the red flags listed above. Is the company offering returns that are too good to be true? Is the company obfuscating its business plan with complicated jargon? Does the company claim there’s no risk involved? If a company’s investment has all of these red flags, then it may not be worth an investment.
If the investment scheme is licensed and registered with the SEC, then investors can proceed with caution. If the investment scheme is neither licensed nor registered, then you may want to avoid it.