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SEC: Investors Need to Be Wary of Digital Asset and “Crypto” Investment Scams

September 10, 2021 Blog

The U.S. Securities and Exchange Commission (SEC) recently issued an Investor Alert warning of digital asset and “crypto” investment scams. According to the SEC, “Fraudsters continue to exploit the rising popularity of digital assets to lure retail investors into scams, often leading to devastating losses.” If you believe that you may have been scammed, you should contact an investment fraud attorney promptly.

Scam Artists Leverage Investors’ Fear of Missing Out

In its Investor Alert, the SEC writes that one of the biggest factors contributing to the recent rise in cryptocurrency and other digital asset investment scams is investors’ fear of missing out. From the meteoric rise of Dogecoin (before its subsequent crash) to the introduction of nonfungible tokens (NFTs), several recent events have drawn attention to the investment potential of digital assets.

However, this public interest has spawned numerous fraud scams as well. As an example, the SEC discusses the case of BitConnect. As the SEC explains, BitConnect “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.” While the company publicly promised, “a safe way to earn a high rate of return on your investment without having to undergo a significant amount of risk,” the SEC alleges that it actually operated a Ponzi-like scheme, paying investor withdrawals with other investors’ funds and ultimately leaving most investors with substantial losses.

Digital Asset Investment Fraud Involving Brokers, Advisors, and Public Offerings

In addition to large-scale fraud scams, investors seeking to ride the digital asset wave also need to be wary of a variety of other risks. This includes the risk of fraud perpetrated by brokers and advisors. Some examples of broker and advisor fraud involving cryptocurrency and other digital asset investments include:

  • Charging excessive fees or commissions for cryptocurrency transactions
  • Recommending cryptocurrencies or other digital assets without understanding the risks involved
  • Recommending unregistered securities offerings (i.e. initial coin offerings (ICOs))

Finally, investors must be wary of companies promoting fraudulent investment “opportunities” in digital assets. The SEC has placed particular emphasis on targeting fraudulent and unregistered ICOs and other fraud scams involving the use of fake testimonials in videos and on social media. In general, the SEC encourages investors to remember that if an investment opportunity seems too good to be true it probably is and to always do their research prior to investing.

Unfortunately, fraud scams targeting cryptocurrency and other digital asset investors are not likely to go away any time soon. As a result, investors must continue to be careful. If you have concerns about an investment in cryptocurrency, an ICO or any other digital asset, you should err on the side of caution, and you should not hesitate to seek professional advice when necessary.

Speak with an Investment Fraud Attorney at Zamansky LLC

Our investment fraud attorneys represent individual investors who have suffered losses due to fraud. To speak with an attorney about your situation in confidence, call 212-742-1414 or request an appointment online now.