Crypto scams are “by far” the largest risk to traders, say securities regulators


Investments related to cryptocurrencies and digital assets are “by far” the biggest threat to investors, according to new data from the North American Securities Administrators Association (NASAA).

“Stories of ‘crypto millionaires’ this year have attracted some investors to invest in cryptocurrencies or crypto-related investments in 2022,” said Joseph P. Borg, co-chair of the Enforcement Section Committee, director of the Alabama Securities Commission.

The annual North American securities regulators survey urged investors to exercise caution before buying popular and volatile unregulated assets, especially those that include cryptocurrencies and digital assets.

“The most common tell-tale sign of investment fraud is the offer of guaranteed high returns without risk. It is important for investors to understand what they are investing in and who they are investing with, ”said Melanie Senter Lubin, NASAA president and Maryland securities officer.

“Education and information are an investor’s best defense against investment fraud,” continued Lubin.

The report added that digital assets “don’t fall neatly into existing investor regulatory frameworks,” so it may be easier for promoters of these products to “cup the public”.

“Before you get into the crypto craze, remember that cryptocurrencies and related financial products may be nothing more than public fronts for Ponzi schemes and other scams,” said Joseph Rotunda, vice chairman of the Enforcement Section Committee.

Rotunda added that investments in cryptocurrency trading programs, stakes in crypto mining pools, crypto custody accounts and securitized tokens “should be seen for what they are: extremely risky, high-risk speculation”.

According to blockchain analytics firm Chainalysis, scammers took home a record $ 14 billion in cryptocurrency in 2021, largely thanks to the rise of decentralized financial platforms (DeFi).

DeFi is a rapidly growing sector of the crypto market that aims to exclude middlemen such as banks from traditional financial transactions such as securing a loan through the use of blockchain technology.

Crypto-related crime losses increased 79% year over year, driven by an increase in theft and fraud.

Fraud was the largest form of cryptocurrency-based crime in 2021, followed by theft – most of it from hacking cryptocurrency companies. Chainalysis says DeFi is a huge part of the story for both of them, yet another warning to those who delve into this emerging segment of the crypto industry.

NASAA noted that many of the fraud threats investors face today involve private offerings that are exempt from registration requirements under federal law. States are also prevented from enforcing investor protection laws in relation to these private securities.

“Unregistered private offers are generally high-risk investments and do not have the same investor protection requirements as those sold through public markets,” said Borg.

Ultimately, state securities regulators say that if it sounds too good to be true, it probably is.

For example, some DeFi platforms offer users huge returns, such as high-interest savings and loan products.

Bad actors often attract new investors by promising secure, lucrative, guaranteed returns over relatively short terms – “sometimes measured in hours or days rather than months or years,” according to NASAA, which says such promises are a red Flag are for fraud.

Fraud offers related to promissory notes, monetary fraud offered online and via social media, and financial programs related to self-managed individual retirement accounts rounded out the list of top threats to retail investors in the survey.

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