Read that over a few times. Are those two words beginning to sound similar? That’s what the founders of My Big Coin, Inc. were hoping when they created their cryptocurrency investment offering. The Nevada-based company has been accused of defrauding investors hoping to cash-in on the recent investment trend. The Commodity Futures Trading Commission (CFTC) recently filed a lawsuit alleging the company used false and misleading information to steal from cryptocurrency investors. The My Big Coin founders preyed on the investor frenzy surrounding virtual currencies, like the popular Bitcoin – which has been yielding dizzyingly high returns – and widespread misunderstanding of the digital assets. By simply choosing a name that sounded vaguely familiar to “Bitcoin”, the company managed to solicit a total of $6 million from 28 investors. In what the CFTC essentially refers to as a Ponzi Scheme, My Big Coin, Inc. solicited investors and wooed them with false claims about values and usage of the fraudulent cryptocurrency. The fraudsters used investments from incoming investors to pay off initial investors, thereby sustaining the appearance of healthy investor returns. Other earnings were used to purchase lavish personal items.

New Players, Same Old Game

What this should teach us – aside from the alarming fact of how widely unregulated the cryptocurrency boom remains – is that cryptocurrency scams are just variations on a theme. In other words, they’re a new dog with the same old tricks. While cryptocurrency is a new and currently-evolving asset class, the investment scams cropping up around them are nothing more than the same ones fraudsters have been using for years – just adapted to suit the current climate. What makes these particular scams especially dangerous is the apparent lack of information investors have regarding cryptocurrency investing or even what cryptocurrency is for that matter. Fraudsters are able to so easily take advantage of investors because of the widespread insufficient understanding of the asset.

Don’t be an Ignorant Investor

We all know the phrase “ignorance is bliss”. However if you’re an investor, ignorance is sure to get you into hot water sooner than later. You need to be completely aware of not only in what you are investing, but also the how and why you are investing.

In the case of My Big Coin, investors allowed themselves to get caught up in the hype and fervor over the virtual currency boom. Realistically, little research (if any) was probably done on the company, with investors choosing to rely on fraudulent earnings reports showing big returns. The trouble is, it is not just novice investors falling victim to cryptocurrency scams. Fraudsters continue relying on the same old scamming methods, because they continue to work. While the blind hype around virtual currencies has certainly made it easier for scammers to dupe some investors, other fraudsters are getting more creative. By employing the basic tactics of “tried and true” investment fraud schemes, scammers create elaborate and complex scams that can dupe even experienced investors. The fact is, virtual currencies remain largely unregulated and existing measures are shaky, at best. Cryptocurrency as, an emerging investment class, continues to evolve at a rapid pace and regulators are constantly playing catch-up.

Blindspots in Oversight Leave Room for Cryptocurrency Scams

While there is an effort to ramp up enforcement and oversight for crypto-assets, regulators are warn that investor protection – like investment-loss recovery – is largely insufficient or non-existent. Unfortunately, these conditions are ripe for fraud. As you might imagine, severe lack of oversight and minimal enforcement of a new and widely misunderstood investment class probably sounds like the perfect opportunity for fraudsters, or what financial industry regulators call, ‘bad actors‘.

Until sufficient measures can be put in place, regulators are imploring investors to exercise caution and practice due diligence before committing to any investment opportunity. The Securities and Exchange Commission (SEC) is warning investors interested in Initial Coin Offerings (ICO) to be especially vigilant, as cryptocurrency scams involving this investment offering have been on the rise. In December, the SEC issued a public statement warning investors of the regulation realities. In it, SEC Chairman Jay Clayton states:

Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.[2] If any person today tells you otherwise, be especially wary.

Currently, lawmakers and regulators are meeting to discuss building a stronger regulatory infrastructure for cryptocurrency investing. SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo appeared at a Senate hearing to discuss legislators’ concerns over crypto-assets.

Spotting ICO and Other Cryptocurrency Scams

Despite their apparent vulnerabilities, cryptocurrency investments remain popular. Even regulators have to concede some merit to the use-potential of crypto-assets. In that same December statement warning of industry risks, Clayton also recognized the effectiveness of initial coin offerings as fund raising method for entrepreneurs and startup businesses. The world of virtual currency industry is very much a modern Wild West; there’s promise and potential, but there are also dangers. Until the dust finally settles, regulators stress that investors need to remain vigilant against fraud. There are many resources available to educate investors interested in learning more about cryptocurrency. If you are considering a cryptocurrency investment offering, check out these resources:

• SEC
  • Ponzi Schemes Using Virtual Currencies
  • Sample Questions for Investors Considering a Crytpocurrency or ICO Investment Opportunity
• CFTC
  • Primer on Virtual Currencies
  • Virtual Currency Resource page
• FINRA
  • “Don’t Fall for Cryptocurrency-Related Stock Scams”

For even more information on cryptocurrency scams and news updates, check out our blog.

What are bad actors?

FINRA defines a bad actor as one within the financial industry “who seeks to evade regulatory requirements and harm investors for their own personal gain”. Essentially, they’re con artists; fraudsters. I’m sure you’re familiar with that old adage about a few bad apples, right? Well, that’s exactly what Financial industry regulators have to say about bad actors. In his statement, FINRA President & CEO, Robert Cook spoke about the danger that bad actors pose to the overall stability in the industry as a whole. Bad actors have the capacity to ruin investor confidence in their broker-dealer and mar the reputation of the entire industry through their actions.

Spotting the bad apples

If you’re involved in the financial industry as an investor, it’s important to be able to spot bad actors. FINRA has comprehensive preventative measures in place to seed-out bad apples but every once in a while, some are bound to slip through the cracks. Here’s some things you should know before doing any business with a new broker-dealer.

License & Registration

No matter what security you’re investing in, make sure your broker-dealer is properly licensed and registered. This means they must be not only a licensed broker, but licensed to do the specific function they are offering to you. The broker must also registered with a licensed brokerage firm.

Account Monitoring

It is especially import to review your monthly account statements. Even if you are a passive investor who prefers to let your broker-dealer make investments as they see fit, you need to monitor your account activity and statements. Watch out for any unusual investments involving large sums, or irregular movement and contact your broker-dealer if you see anything unusual.

Aggressive Solicitation Practices

Aggressive or unwarranted solicitation of services or information should be an immediate red-flag. If you have been receiving repeated calls, emails or requests for correspondence from an individual claiming to be a broker-dealer associated with your account, you need to verify they’re identity.

Investor Resources

FINRA offers comprehensive investor support and resources. Click here if you want to learn more about filing a complaint or other services Contact our investment loss recovery attorneys if you believe you or a family member has been affected by bad actors.