The North American Securities Administrators Association (NASAA) issued its first warning to investors for 2018. What is their concern? Cryptocurrency investments and initial coin offerings, sometimes called ICO’s.
Some cryptocurrencies such as Bitcoin have soared by over 1500% in 2017. The hype has caused many investors to max out their credit cards or mortgage their homes. We were contacted by one banker who was furious that a digital coin exchange, Coinbase, took several days to process his funds. The value of some cryptocurrencies fluctuates so much that a seven day delay apparently caused him to miss out on 20% of gains!
With billions of dollars flooding into cryptos and new coin offerings appearing weekly, the market has attracted its fair share of crooks and scam artists. (Some folks would argue the entire cryptocurrency market is a scam!)
The NASAA represents the securities administrators in all 50 states and the Canadian provinces. 94% of their members believe the market has a high risk of fraud. All members agreed that “that more regulation is needed for cryptocurrency to provide greater investor protection.”
In issuing the warning, the director of Alabama’s state Securities Commission said, “The recent wild price fluctuations and speculation in cryptocurrency-related investments can easily tempt
unsuspecting investors to rush into an investment they may not fully understand. Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility. Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart.”
This week the Securities Exchange Commission said, “It is clear that many promoters of ICOs and others participating in the cryptocurrency related investment markets are not following these laws.”
Texas Blocks BitConnect
On the same day that the states said they were concerned about initial coin offering fraud, the Texas State Securities Board issued an emergency cease and desist order on a U.K. based cryptocurrency platform call BitConnect.
Texas claims that BitConnect failed to register in Texas and that its offering is fraudulent.
According to regulatory documents and BitConnect’s website,
- “BitConnect is the investment tool investors need to jump start their financial security”
- Investors who purchase BitConnect Coin are purchasing an interest bearing asset with 120% return per year. It is that simple.”
- Investors lending an amount priced between $10,010 and $100,000 receive interest accrued daily valued at “volatility software interest,” which may be as much as 40% per month, plus 0.25% daily interest, payable after 120 days.” [By our calculations, that is 571.25%!]
With Bitcoin up over 1500% the prospects of an investment making 600% a year may not be that far off. The problem is in promising safety and security.
Texas also says that BitConnect has failed to identify its principals, has not disclosed its principal place of business, has not disclosed basic financial information and has not disclosed the financial interests held by the company’s founders.
While Texas’ foray into the Wild West of cryptocurrency is welcome, we worry that the state’s actions aren’t very effective.
Cryptocurrencies and initial coin offerings are difficult to regulate. While BitConnect lists a London address, the state acknowledges it is not even sure where the company is located. In our experience, many of these ICOs are nothing more than a website. No one to this day even knows the true identity of Bitcoin’s founder!
While the feds may be able to block a company’s website, folks with Tor browsers can get around those measures. In the case of BitConnect, the company markets through Craigslist and social media.
While BitConnect has the ability to contest the Texas Securities Board action, we suspect they won’t even bother. Just two weeks ago Texas issued another cryptocurrency related emergency cease and desist order. The state’s December 20th order was against SI-Tech Ltd, an investment related to Bitcoin mining.
(More on SI-Tech and BitConnect below.)
“How Do I Recover Losses from a Failed Cryptocurrency Investment?”
We are receiving more calls these days from investors trying to get back their money from failed cryptocurrency offerings and scams. Unfortunately, the answer isn’t want most people want to hear.
Unless you purchased from a brokerage firm or investment adviser, getting back your money is extremely difficult. Even the states and SEC with all their tools and law enforcement power can’t do much. Recently the SEC and NASAA issued a statement saying, “The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”
Brokerage firms are aware of the problems with cryptos and several have banned brokers from selling them.
Brokerage firms have a duty to perform due diligence on the investments being sold by their brokers. They also have a duty to only recommend investments that are “suitable” for their clients’ needs. Virtually all cryptocurrency offerings fail on both counts.
The newest phenomena we are seeing is something called “selling away.” Some individual financial advisers are offering these investments despite explicit instructions from their employers.
Why? Money! Brokers know that cryptocurrency investments have become a mania. If they don’t fulfill their customers’ appetite for ICOs, some other broker will.
If you have lost money on a cryptocurrency investment and a broker, financial professional or investment advisor was involved, give us a call or contact us online. See also our cornerstone content on Bitcoin, cryptocurrency scams and ICO’s.
Call for BitConnect and SI-Tech Ltd Whistleblowers
As leading SEC whistleblower lawyers, we are always looking for insiders at ICO offerors and cryptocurrency investments businesses. Under the SEC Whistleblower Program, people with inside information about cryptocurrency offerings may be eligible for large cash awards. You don’t need to be a United States citizen or resident to collect an award but the investment must have U.S. investors or be marketed in the United States.
The SEC created a special cryptocurrency enforcement unit last year and is aggressively pursuing scam promoters. If we can help the SEC shut down these scams, you may be entitled to up to 30% of what the SEC collects from the wrongdoers.
For more information, contact us online, by email at *protected email* or by phone at 414-70-6731. All inquiries are protected by the attorney – client privilege and kept strictly confidential. We can also keep your name confidential and protected from disclosure to regulators.
MahanyLaw – America’s Cryptocurrency Fraud Lawyers
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