Cryptocurrency Scams Likely on Rise, Texas Regulator Warns

Texas’ securities board recently began a four-week regulatory sweep of crypto-related investment offerings in the state, an effort to proactively clamp down on fraud in the wake of a steep climb in the price of bitcoin.

by Bob Sechler, Austin American-Statesman / July 2, 2019
Shutterstock

(TNS) — Investor fervor for cryptocurrencies is once again on the rise, prompting state securities regulators to caution that an increase in crypto-related scams won't be far behind.

"It's unfortunate and inevitable," said Joe Rotunda, director of enforcement at the Texas State Securities Board. "Bad actors tend to follow the news and the things that get widespread public attention."

The securities board recently began what it expects to be a four-week regulatory sweep of crypto-related investment offerings in the state, an effort to proactively clamp down on fraud in the wake of a steep climb in the price of bitcoin -- the most popular cryptocurrency -- over the past few months. The move by the securities board is modeled after a similar initiative it took in December 2017, when bitcoin soared to an all-time high above $20,000 per token.

Prices of bitcoin and many other cryptocurrencies are off sharply from the 2017 pinnacle, with bitcoin finishing last year below $3,800, according to Coinmarketcap.com, which provides cryptocurrency price quotes. But bitcoin has been rebounding in 2019 -- trading recently around $10,400, nearly triple its level at the start of the year.

The climb is related partly to plans by Facebook Inc. to launch its own cryptocurrency -- called Libra -- that's being designed to anchor a new online payment system. The recent Facebook announcement has been greeted with excitement by investors in bitcoin and some other cryptocurrencies, largely because of the potential for Libra to bring the concept of digital currencies into the mainstream.

But regardless of the reasons, Rotunda said a rise in investment scams undoubtedly will be among the byproducts of the renewed crypto enthusiasm.

"Absolutely, there will be more," he said. "Its tough, because there are a lot of legitimate firms out there dealing with this new technology."

The ongoing sweep by the securities board already has resulted in three emergency cease and desist orders against promoters of fraudulent crypto-related investments, all of whom have been soliciting Texas residents through Facebook "work from home" forums.

The agency's four-week sweep that began in December 2017 resulted in 10 emergency actions against promoters illegally or fraudulently offering securities tied to cryptocurrencies.

Over the past 18 months, the securities board has taken emergency action against 61 companies and individuals in 22 administrative cases involving crypto-related investments being sold in Texas, according to the agency. The prevalence of the scams prompted Rotunda to note last year that crypto-related potential swindles had surpassed schemes involving oil and gas assets, real estate and stocks as the most popular means by which fraudsters were attempting to separate Texas investors from their money.

Among the latest cases, the securities board on Friday ordered an India-based company called TintXMiningPool to immediately stop marketing and selling unregistered securities in Texas and to stop using statements that are "materially misleading or otherwise likely to deceive the public" to do so. According to the state agency, the company used a Facebook group titled "Texas Work From Home (DNT)" to advertise to Texas investors, contending among other things that "they can earn $213,300 over three months on an initial investment of $5,100 in the company's bitcoin mining operation."

The company's website has been taken down.

The securities board also issued emergency cease and desist orders last week against two individuals, one from London and another from Belize, who have been promoting crypto-related investments through ads on a Facebook group titled "Work From Home | Earn Money Online | San Antonio Texas." In both cases, the individuals have been touting the potential for big profits by trading bitcoin, various other cryptocurrencies and foreign currencies, according to the state agency, although neither are registered to sell securities and both "are intentionally failing to disclose the risks" involved.

©2019 Austin American-Statesman, Texas. Distributed by Tribune Content Agency, LLC.

Platforms & Programs