US Regulators Warn Investors of Crypto Advisory, Trading Scams

Titled “Watch Out for Fraudulent Digital Asset Trading Websites,” it encourages customers to thoroughly research all claims.

The US top regulators have issued a joint warning to investors, advising them to exercise caution and carry out comprehensive research before investing in any cryptocurrencies, including those advertised as advisory and trading businesses related to digital assets.

The alert, which came in the form of a Customer Advisory warning posted by SEC’s Office of Investor Education and Advocacy and the Office of Customer Education and Outreach at the CFTC, is the second warning released by a regulatory body on the subject of digital assets this month.

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The purpose of the advisory notice, according to the agencies, is to enlighten potential investors about existing risks and threats in the cryptocurrency market. Titled “Watch Out for Fraudulent Digital Asset and “Crypto” Trading Websites,” it encourages customers to thoroughly research all claims, particularly those made by investment scams where fraudsters tout digital asset or “cryptocurrency” advisory and trading businesses.

Hallmarks of a fraud

“In some cases, the fraudsters claim to invest customers’ funds in proprietary crypto trading systems or in ‘mining’ farms. The fraudsters promise high guaranteed returns (for example, 20-50%) with little or no risk,” the statement notes.

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The main theme of the latest notice is that potential investors should be wary of crypto schemes that over-promise or guarantee some kind of future return. Customers are advised to view any such advertising as an investment red flag, indicating possible intent to defraud.

“Claims such as “risk-free,” “zero risk,” “absolutely safe,” and “guaranteed profit” are hallmarks of a fraud,” the agency said.

The regulators have also put out ‘Complicated jargon and language that is difficult to understand,’ ‘investment sounds too good to be true’ and ‘unsolicited sales or communications’ as possible red flags.

The US regulators are taking a multi-pronged approach to investors protection, educating the public about the risks of cryptocurrencies while simultaneously bringing enforcement actions against offenders.

Earlier this month, two of SEC’s prominent executives provided guidance to help crypto assets issuers and providers determine whether their token is a security or not. The main takeaway was that the SEC has made it clear that the Howey Test applies to crypto as it does to other investments.

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