Texas Investigation Finds 32 Illegal Cryptocurrency Schemes
- The Texas State Securities Board urges the public to use common sense to avoid the widespread scams.
The Texas State Securities Board has published a report on cryptocurrency fraud, calling it "widespread".
The 14-page report refers to a four-week investigation which the authority carried out "in response to a sharp increase in the number of cryptocurrency investment opportunities being marketed to Texans".
The TSSB does not regulate cryptocurrency, but investment offerings that claim to use them.
The investigation began on the 18th of December, 2017, and covered 32 different ventures. It uncovered a long list of illegal activity, including:
- Not one of the companies was registered to sell securities in Texas
- Only 11 provided any physical address
- At least 5 of the companies guaranteed unrealistic returns
- 6 of the companies paid commission to investors who recruited other investors, which is the hallmark of a Ponzi scheme.
The report notes that while in many investment schemes the words token and coin are often used interchangeably, they are not the same thing. Tokens are regarded as securities under US law, and companies that offer securities must be registered.
It cites the example of BitConnect, the infamous UK-based scam which was served with a cease-and-desist order by the Texan regulator in January 2018. BitConnect promised investors that they could earn up to 600 percent profit in a year by recruiting other investors. Meanwhile, it did not have a whitepaper and did not display the information of any of its team on the official website.
The TSSF charged BitConnect with selling unlicensed securities.
The report cites several other examples of when it had to take such actions - in fact in the same month that it cut off BitConnect it served another cease-and-desist order to AriseBank. This startup claimed to be “the world’s first decentralized cryptocurrency bank”. The Texan authority took issue with the use of the word 'bank' and the implication that it was registered to perform banking activities in the state.
The public is also reminded that investing in the tokens of a startup carries significant risk, something which was not advertised by the companies investigated:
"Left unsaid were the inherent risks of cryptocurrencies like increased national and international regulation; the high Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term in pricing; or the prospect of hackers penetrating security systems and disrupting an investment program or absconding with cryptocurrencies. In fact, at least five of the 32 promoters subject to the targeted investigations appear to have brushed aside concerns about risk by guaranteeing returns on their investment."
The Texas State Securities Board has published a report on cryptocurrency fraud, calling it "widespread".
The 14-page report refers to a four-week investigation which the authority carried out "in response to a sharp increase in the number of cryptocurrency investment opportunities being marketed to Texans".
The TSSB does not regulate cryptocurrency, but investment offerings that claim to use them.
The investigation began on the 18th of December, 2017, and covered 32 different ventures. It uncovered a long list of illegal activity, including:
- Not one of the companies was registered to sell securities in Texas
- Only 11 provided any physical address
- At least 5 of the companies guaranteed unrealistic returns
- 6 of the companies paid commission to investors who recruited other investors, which is the hallmark of a Ponzi scheme.
The report notes that while in many investment schemes the words token and coin are often used interchangeably, they are not the same thing. Tokens are regarded as securities under US law, and companies that offer securities must be registered.
It cites the example of BitConnect, the infamous UK-based scam which was served with a cease-and-desist order by the Texan regulator in January 2018. BitConnect promised investors that they could earn up to 600 percent profit in a year by recruiting other investors. Meanwhile, it did not have a whitepaper and did not display the information of any of its team on the official website.
The TSSF charged BitConnect with selling unlicensed securities.
The report cites several other examples of when it had to take such actions - in fact in the same month that it cut off BitConnect it served another cease-and-desist order to AriseBank. This startup claimed to be “the world’s first decentralized cryptocurrency bank”. The Texan authority took issue with the use of the word 'bank' and the implication that it was registered to perform banking activities in the state.
The public is also reminded that investing in the tokens of a startup carries significant risk, something which was not advertised by the companies investigated:
"Left unsaid were the inherent risks of cryptocurrencies like increased national and international regulation; the high Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term in pricing; or the prospect of hackers penetrating security systems and disrupting an investment program or absconding with cryptocurrencies. In fact, at least five of the 32 promoters subject to the targeted investigations appear to have brushed aside concerns about risk by guaranteeing returns on their investment."