Recently, several cryptocurrency scams have come to light: dishonest individuals advertising their newly concocted crypto-coin as the next big thing, with a potential to make millions for investors willing to take the risk.
FINRA recently issued an Investor Alert to warn investors about purchasing shares in companies advertising new cryptocurrencies.
The document focused on recent experiences of companies marketing shares through, “unrealistic predictions of exponential returns and unsubstantiated claims,” which can often be signs of “a classic ‘pump and dump’ scam.”
FINRA also pointed out that the individuals marketing cryptocurrencies in this way are seldom licensed.
Typically, the people running this type of scams will make misleading statements promising exponential yields, creating “unwarranted demand” to inflate stock prices.
According to a spokesperson for FINRA,
“It can be difficult for investors to avoid the lure of the cryptocurrency markets, especially when prominent people express interest in it, and news reports and social media tout the promise of guaranteed quick fortunes and skyrocketing returns... when legitimate companies enter a hot, new sector, con artists almost always follow suit.”
FINRA offered a series of tips to investors interested in the cryptocurrency-stock market:
- Beware of exaggerated and pushy sales pitches. Misleading claims can be reported to FINRA through the appropriate channels.
- Do not buy cryptocurrency stocks in response to cold callers, especially if they are priced very low.
- Run the salesperson’s and the firm’s names through BrokerCheck before making any purchases. Buying from unregistered individuals or those with multiple disciplinary actions can put you at risk.
- Run the firm’s name through the SEC's EDGAR database to see if it files with the agency.
- Beware of stocks that show unusual spikes in price, as this may be a response to market manipulation.
- Check out where the stocks are traded. Stocks traded in established markets are safer, and OTC quotation platforms often include icons warning investors of potential risks.
A Recent Cryptocurrency Scam
Recently, the Commodity Futures Trading Commission filed a complaint against cryptocurrency issuer My Big Coin Pay and its operators over what the press has called a “not-so-subtle” Ponzi scheme. Through misleading and false claims, the operators were able to obtain $6 million from investors, which they used to purchase real estate and luxury items.
The defendants later tried to conceal the fraud by issuing new crypto-coins, in a move to discourage customers from redeeming their holdings.
The CFTC has cracked down on several other schemes involving cryptocurrencies. Now, FINRA is making it clear that it will do its best to protect investors from those looking to exploit the cryptocurrency boom.
Cryptocurrency legal issues? Herskovits PLLC experienced securities lawyers are up to date to rules, regulations and realities for cryptocurrency principals, investors, and promoters. Trouble or opportunity? Give us a call 212 897 5410 or CONNECT ONLINE