Crypto Scams Top NASAA’s Emerging Investor Threats in 2020

The regulator says cryptocurrencies may be nothing more than “public facing fronts for Ponzi schemes and other frauds.”

The North American Securities Administrators Association (NASAA) today released its annual list of financial products that threaten to trap investors, identifying the most frequent sources of current complaints or industry investigations.

While the 2020 catalog includes many long-standing threats, it also features emerging vehicles such as cryptocurrency, which the watchdog describes as one of the greatest risks to investors this year.

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NASAA’s updated list of five top threats that investors are likely to see in 2020 includes promissory notes, Ponzi schemes, real estate investments, cryptocurrency-related investments, and social media/Internet-based investment schemes.

Many of the traps identified by NASAA promise high returns but provide little if any disclosure of risks and offer high commissions to aggressive sales practices.

“Anyone who says their investment offer has no risk is lying. No one can guarantee an investment return,” said Christopher Gerold, NASAA president and chief of the New Jersey Bureau of Securities.

The regulator has put the phenomenon of the crypto craze at the top of their investment scams list, highlighting that cryptocurrencies and related financial products may be nothing more than “public facing fronts for Ponzi schemes and other frauds.” As such, it advises investors to screen themselves from crypto promotions that fail to offer clear disclosures of their risks and costs.
“And because these products do not fall neatly into the existing federal/state regulatory framework, it may be easier for the promoters of these products to fleece you,” it said.

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Other highlights in the annual list compiled by NASAA show that despite the heightened awareness of ongoing scams such as Ponzi schemes and the relatively old phenomenon of social media/Internet-based investments, these scams continue to trap investors.

NASAA continues crypto crackdown

In a new twist on online investment fraud, NASAA was concerned that scammers have immediate access to potential victims through their online profiles, which may contain sensitive personal information. As such, con artists can easily lure people and promote fraudulent investment products using a highly targeted pitch.

During NASAA’s 2018 fiscal year, the agency’s enforcement actions secured more than $1 billion in restitution, disgorgement, and penalties. Out of this figure, more than $558 million returned to investors million, while $490 million in fines were handed over to the regulators.

The NASAA revealed that more than 130 new cryptocurrency-related cases are being actively investigated, with 35 enforcement actions already taken since the beginning of 2019.

These investigations are part of the association’s ongoing coordinated regulatory initiative called Operation Cryptosweep, which was launched in 2018. At that time, more than 40 state and provincial securities regulators in the United States and Canada launched their coordinated enforcement sweep of the ICO market.

The NASAA noted that while some of the investigations involve suspected securities fraud, the regulators are also finding many other violations, including failure to register a product before it was offered to investors.

NASAA also organized a task force to launch investigations into ICOs and cryptocurrency-related investment products. The task force found more than 30,000 crypto-related domain name registrations, the vast majority of which appeared in 2017 and 2018.

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