An international task force has taken it upon themselves to curb the crypto frauds through operation crypto sweep, which is already set in motion. In their announcement on August 8th, the North American Securities Administrators Association (NASAA) revealed that the operation has resulted in over 200 investigations pertaining to initial coin offerings (ICOs) and investment products related to crypto.
In an ICO, coins or tokens are put up for sale as a form of crowd funding. But more often than not, they are backed by a vague idea or nothing at all.
State and provincial securities regulators of both the US and Canada and the neighboring countries started probing seemingly fraudulent crypto investment programs earlier in May. The ‘Crypto Sweep’ is the largest coordinated investigation of its kind in the states. Considering the track record of crypto related frauds, it was only a matter of time for such an investigation to pop up.
State and provincial securities regulators are committing significant regulatory resources to protect investors from financial harm involving fraudulent ICOs and crypto currency-related investment products and also are raising awareness among industry participants of their regulatory responsibilities
said NASAA president and Alabama securities commission director Joseph P. Borg.
Identity theft scams
Earlier in May, the Texas security board had to shut down an ICO on the suspicion of using fake endorsements from celebrities to promote its token sales fraudulently. In addition to illegally marketing unregistered securities, the ICO, Wind Wide Coin used photographs of prominent figures like, Jennifer Anniston, Prince Charles and supreme court justice Ruth Bader Ginsburg to dupe investors.
The ICO also used these names in their marketing materials for investment promoters and used stock videos to portray that the company was running three crypto currency mining farms.
Twitter crypto bot scams
With crypto and blockchain, comes a Pandora’s box of fraudulent accounts and schemes. In August, a team of researchers from a security firm, Duo, discovered a sophisticated network of scam bots operating on Twitter, revealing 15,000 such individual accounts. Scam bots have been targeting the accounts of individuals in the crypto currency industry through relentless giveaway schemes. Litecoin’s Charlie Lee, Ethereum’s Vitalik Buterin and Binance exchange’s Changpeng Zhao, have all been affected by the crypto twitter bot epidemic.
SEC’s awareness scam
Earlier in May, the US Securities and Exchange Commission (SEC), tricked people into believing that it was launching its own crypto currency, The HoweyCoin. The SEC unveiled the new crypto in a statement titled
The SEC has an Opportunity You Won’t Want to Miss: Act Now!
The token sale documents promised that the coin would use blockchain technology to revolutionize the travel industry. It even had convincing endorsements from athletes, social media influencers, and other celebrities. However, promising as it all seemed it was alas a scam. The moment prospective investors click the “Buy Coins Now” link, they were directed to an SEC investor education website that provides information on how to identify and avoid common ICO scams.
The SEC was able to build the HoweyCoins website in-house in very little time, which demonstrates just how easy it is for someone to create a scam opportunity.
Borg emphasized the need for ICOs to register with appropriate agencies, or at the very least, with contract regulators to examine if they are eligible for exemptions.
While not every ICO or crypto currency-related investment is a fraud, it is important for individuals and firms selling these products to be mindful that they are not doing so in a vacuum; state and provincial laws or regulations may apply, especially securities laws. Sponsors of these products should seek the advice of knowledgeable legal counsel to ensure they do not run afoul of the law. Furthermore, a strong culture of compliance should be in place before, not after, these products are marketed to investors.
Since the project’s launch, investigators have discovered about 30,000 crypto-related domain names, most of which were registered last year when the bitcoin (BTC) price reached its record high of $20,000.
Up until now the ‘Operation Crypto Sweep’ regulators have issued 46 enforcement actions. However, it is clear that NASAA has a long way to go to clean the fraudulent litter of crypto and blockchain. Joseph Rotunda, director of enforcement at the Texas State Securities Board, said;
The work is far from complete, but state and local regulators will continue to conduct sophisticated investigations and bring appropriate enforcement actions to promote confidence and security in the market for investments tied to crypto currencies.