Cryptocurrencies top fraud threat in 2022


The main investor protection concern is fraud and scams involving cryptocurrencies and other digital assets, according to the 46 state regulators surveyed as part of the annual survey conducted by the North American Securities Administrators Association (NASAA).

Regulators have identified four threats to investors in 2022:

cryptocurrencies and other digital assets that come out on top;
promissory note fraud;
internet and social media scams;
and schemes targeting self-directed retirement accounts.

Cryptocurrencies, a risky asset

“Stories of ‘crypto millionaires’ have prompted some investors to attempt cryptocurrency investment or cryptocurrency-related investments this year, and with this trend, many stories of big bets followed by heavy losses have emerged and will continue to make headlines in 2022,” said Joseph Borg, director of the Alabama Securities Commission and co-chair of NASAA’s enforcement committee. in a press release.

Since cryptocurrencies don’t clearly fit into the existing federal/state regulatory framework, they are sometimes used as fronts to cover up Ponzi schemes and other frauds. Before embarking, investors should consider them for what they are, i.e. a very risky speculative asset, regulators advise.

Beware of beautiful promises

With respect to promissory note fraud, NASAA advises investors to be wary of promissory notes with a maturity of nine months or less, as these notes generally do not require federal or state registration of securities.

These short-term debt securities can be offered by little-known companies and promise high returns with minimal risk-taking.

“The most common telltale sign of an investment scam is the offering of high returns guaranteed without risk. It’s important for investors to understand what they’re investing in and with whom they’re investing,” said Melanie Senter Lubin, NASAA President and Maryland Commissioner of Securities. She points out that scammers often draw inspiration from the flavor of the day to lure their victims.

Who is behind the screen?

On social media, scammers quickly manage to establish a relationship of trust and build a certain credibility. This gives fraudsters access to the profiles of their potential victims and can more easily approach them. In addition, these profiles allow them to access sensitive information such as their dates or places of birth, phone numbers, home addresses, religious and political opinions, work history, and photos.

The red flags are, as with promissory notes, the promises of a high risk-free return, but also: operations abroad and the obligation to open an account in digital currency.

Self-directed retirement accounts

These frauds generally target seniors and retirees.

Regulators advise caution against private offerings, “because federal law exempts these securities from federal registration requirements and prevents states from enforcing important investor protection laws,” reports Joseph Borg, director of the Alabama Securities Commission and co-chair of NASAA’s Enforcement Section Committee.

According to him, unregistered private offers are generally high-risk investments and “do not have the same investor protection requirements as investments sold on public markets.”


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