Fake crypto offerings pose biggest investor threat, regulators say

Fake investments purporting to be cryptocurrency and digital asset offerings could do the most harm to investors this year, state securities regulators said Monday.

Crypto scams were cited as the top investor threat in an annual survey released by the North American Securities Administrators Association, the umbrella organization for securities regulators from the United States, Canada and Mexico.

The other top threats were fraudulent offerings related to promissory notes, social media and internet investment scams, and rip-offs involving self-directed individual retirement accounts. The survey included responses from 46 regulators and concluded on Dec. 22. The threat list is a follow-up to NASAA’s annual enforcement report.

NASAA President Melanie Senter Lubin compared crypto schemes to the boiler rooms of the past, except that they use email, social media and websites to find their victims. Lubin, who's also the Maryland Securities commissioner, said her office gets about a half-dozen calls a week regarding crypto rip-offs.

“People are being scammed right and left thinking that they’re buying cryptocurrency,” Lubin said on a conference call with reporters. “They’re really investing in nothing.”

Fraudsters are taking advantage of the growing popularity of cryptocurrency and its widespread media coverage to perpetrate scams.

“Increasing Main Street interest in complex digital assets coupled with increasing numbers of social media and Internet users all contribute to an environment ripe for fraudulent misconduct,” said Joseph Borg, director of the Alabama Securities Commission and co-chair of NASAA’s enforcement section.

Most scams are perpetrated outside of traditional financial advice channels.

“It is a rare case that it is a registered investment adviser rep or a registered broker-dealer agent that is involved,” Borg said. “This is not generally in what I would call the legitimate licensed space.”

Oversight of cryptocurrency is something that continues to be sorted out by regulators. In the meantime, investors should be wary of crypto offerings that sound too good to be true.

“Our message to investors is simple: You should refrain from purchasing investments you don’t understand from promoters you don’t know,” said Joseph Rotunda, Texas State Securities Board enforcement director.

An area that is of growing concern to regulators is rip-offs involving self-directed retirement accounts. Fraudsters lull victims into thinking that their investment offering is legitimate because it’s part of an IRA.

But in self-directed retirement accounts, investors have fewer protections. “It has become one of the new hallmarks of con artists,” Borg said.

The scams involving self-directed IRAs tend to be significant, Rotunda said.

“They often target senior citizens and retirees throughout the country and they can grow very quickly in a short period of time,” Rotunda said.