Digital Asset and Cryptocurrency Websites: The SEC Warns of Increase in Fraudulent Activity

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The developing market of virtual currencies and online trading continues to present difficulties for the financial investment industry.

In late April 2019, the Securities and Exchange Commission (SEC) released an investor alert that advised extreme caution surrounding digital asset and cryptocurrency trading, particularly when trading online.

The SEC and the CFTC’s Office of Customer Education and Outreach warned firms of an observed increase in the number of investment scams where fraudsters tout digital asset or “cryptocurrency” advisory and trading businesses, particularly those offering to invest customers’ funds in proprietary crypto trading systems, commonly known as “mining” farms.

Read the full risk alert here.

How Cryptocurrency Scams Commonly Operate

First, investors are convinced to make an ill-advised investment that utilizes Bitcoin or a similar digital asset.

After receiving funds, the scammers often cease communications entirely, hastily sending the investors’ money overseas, leaving investors with little-to-no chance of recovering their funds.

In some cases, investors are locked in an advance fee scheme, where they pay bogus charges prior to receiving proceeds, money, stock, or warrants, which allows the scammers to withdraw fake “profits” earned from the investment.

Avoiding Fraud: Be Aware of Red Flags

These phishing or fraudulent websites, as well as the behavior of their operators, often display red flags that indicate potential fraud and a need for caution and deeper scrutiny, including:

● Claims of high or guaranteed returns

● Promises of low or even zero risk

● Confusing language or complicated jargon

● Lack of proper licensure or registration

● Unsolicited offers

● High-pressure sales tactics

Investments with the potential to produce high returns usually involve significant risk, which means that any touting of “risk free” or “guaranteed” investments should be treated with the utmost skepticism.

Protect Your Firm: Help Is Available

In its effort to protect firms and investors from the ever-increasing number of scams occurring in the loosely regulated and highly developmental frontier of cryptocurrency trading and online investments, the SEC has made a number of additional resources available in the April risk alert.

All investors considering trading in cryptocurrency, or any firms planning to include cryptocurrencies in investment offerings, should consider educating themselves as thoroughly as possible regarding the inherent risks and relevant safeguards related to the online trading of cryptocurrencies.

For more information on legal and regulatory considerations regarding the trading of virtual currencies, potential red flags indicating possible fraud, or any other related legal questions, contact Jacko Law Group, PC. Let our experience work for you.

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