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Broker Faces Fraud Charges Related to Unregistered Cryptocurrency Securities

September 28, 2018 Blog

Since its recent infancy, fraud has plagued the cryptocurrency market. Combine cryptocurrency’s inherent obscurity with the fact that many potential investors do not know much more than what they have read about Bitcoin in headlines, and you get an entire industry that is ripe for abuse.

FINRA Targets Alleged Cryptocurrency Securities Fraud

Recently, the Financial Industry Regulatory Authority (FINRA) announced that it is pursuing its first-ever complaint against an entity suspected of unlawfully selling cryptocurrency securities. In this case, FINRA alleges that the perpetrators of the fraud relied on investors’ lack of knowledge about cryptocurrency and their lack of knowledge about securities investments. According to FINRA:

“[F]rom January 2013 through October 2016, [the defendant] attempted to lure public investment in his worthless public company, Rocky Mountain Ayre, Inc. (RMTN) by issuing and selling HempCoin – which he publicized as “the first minable coin backed by marketable securities” – and by making fraudulent, positive statements about RMTN’s business and finances. . . .

“[The defendant] marketed HempCoin as “the world’s first currency to represent equity ownership” in a publicly traded company and promised investors that each coin was equivalent to 0.10 shares of RMTN common stock. Investors mined more than 81 million HempCoin securities through late 2017 and bought and sold the security on two cryptocurrency exchanges.”

FINRA also alleges that the defendant failed to register the securities and made “multiple” false and misleading statements in the company’s financial disclosures.

Cryptocurrency Scams are Not New

But, while this may be the first known case of a person trying to unlawfully sell securities repackaged as cryptocurrency, cryptocurrency scams are not new. FINRA issued an Investor Alert warning of the risk of cryptocurrency scams late last year, and we have covered the topic in depth on our blog as well. For individuals who are thinking about investing in cryptocurrencies or cryptocurrency securities, potential red flags include:

  • Initial Coin Offerings (ICOs) with limited publicly-available information
  • Cryptocurrencies or cryptocurrency stocks being sold in aggressive cold calls
  • Unsolicited emails with limited information
  • Substantial jumps in the market price of a cryptocurrency or cryptocurrency stock
  • Sales being conducted in over-the-counter (OTC) markets rather than public exchanges

While none of these are necessarily indicative of fraud (nor are they the only factors that can signify a fraudulent cryptocurrency scam), they often are. When in doubt, potential investors should do their research, speak with their investment advisors and avoid the temptation to chase “get rich quick” opportunities. If it is too late to avoid losing money in a cryptocurrency scam, a financial recovery may be available through FINRA arbitration.

Contact Zamansky, LLC | A Leading Securities Fraud Law Firm

Zamansky, LLC is a leading securities fraud law firm comprised of attorneys who have decades of combined experience representing individual investors in FINRA arbitration. If you have lost money in a cryptocurrency scam, we may be able to help you recover your losses. To speak with an attorney about your case in confidence, call us at (212) 742-1414, or send us a message online and we will be in touch as soon as possible.