States Continue Crackdown on Cryptocurrency Investments

Aug 28

U.S. state and Canadian securities regulators, continuing their crackdown on questionable cryptocurrency-related investments, have taken 47 enforcement actions against fraudulent investment promoters and opened more than 200 investigations since May 1.

The North American Securities Administrators Association (NASAA), an organization of all U.S. state and Canadian provincial regulators, launched the regulatory sweep in response to a speculative mania in virtual currencies and investments tied to them.

In the last six months of 2017 the price of one bitcoin increased from $2,364 to an all-time high of $19,205, driving an increase in promoters illegally and fraudulently using online advertising, social media, and other public solicitations to attract investors. By the end of 2017 the market capitalization of all cryptocurrencies had skyrocketed to more than $500 billion.

In the regulatory sweep securities regulators uncovered extensive fraud in the market for Initial Coin Offerings and other suspect cryptocurrency offerings.

“We have learned that bad actors are leveraging widespread interest in cryptocurrencies to defraud the investing public,” said Texas Securities Commissioner Travis J. Iles. “We’ll continue to conduct thorough investigations, secure evidence and bring enforcement actions to protect Texans.”

Please consult the State Securities Board's Cryptocurrency Resources  for more information on the risks associated with investments tied to virtual currencies.

The investigations found that many promoters were not complying with registration laws and were concealing important information from investors, including the significant risks in cryptocurrency markets and the true identities of the managers of the investment programs.

In December Commissioner Iles entered an emergency order against USI-Tech, which was the first state action taken against a fraudulent promoter of cryptocurrency-tied investments.

The State Securities Board has taken a total of 11 enforcement actions against cryptocurrency promoters, effectively halting schemes in which companies claimed to have raised billions of dollars from investors.

Emerging Investor Threat: Cryptocurrencies

The TSSB has found widespread fraud in investments that are supposedly tied to cryptocurrencies.

Read the results of a four-week investigation into crypto offerings and ongoing enforcement efforts.

Cryptocurrency Glossary

Bitcoin. A specific currency in an electronic payment system that acts as an alternative to fiat currency. It exists only on computers and the internet. It is not backed by a government, and its price is not set by a centralized authority.

Cryptocurrency. A digital currency secured through cryptography, or codes that can't be read without a key.

Blockchain. A permanent online ledger that functions as a public accounting of cybercurrency transactions that have been executed. New “blocks” are added to the blockchain after the confirmation of each set of transactions.

Blockchain technology. Enables the electronic payment system for virtual currencies, but not tied to any specific currency. Companies are using blockchains to create a permanent record of transactions of such things as sales of investments, corporate records, and legal documents.

Initial Coin Offering. In an ICO, an entity issues virtual coins, often called tokens, to raise capital. A “token sale” is simply distributing a new cryptocurrency to investors,  who typically pay for the tokens in bitcoin or another established cryptocurrency.

Mining. The process of applying high amounts of computing power to solve complex equations that verify transactions in a virtual currency. Miners who solve the equations are awarded new units of the virtual currency.