In the United States of America, the Securities and Exchange Commission (SEC’s) Office of Investor Education and Advocacy (OIEA) and Division of Enforcement’s Retail Strategy Task Force (RSTF) have warned investors to watch out for investment schemes involving digital assets and “crypto.”
This is coming barely seven months after Nigeria’s SEC said it is monitoring developments in that space.
According to the commission, the primary objective of its statement on digital assets was not to hinder or stifle innovation, but “to establish standards of ethical practices that ultimately make for a fair and efficient securities market.”
The SEC Nigeria said it will continue to monitor developments in the digital asset space and further engage all critical stakeholders with a view to creating a regulatory structure that enhances economic development while promoting a safe, innovative and transparent capital market.
However, US SEC warns that fraudsters have continued to exploit the rising popularity of digital assets to lure retail investors into scams, often leading to devastating losses.
“Digital assets” include crypto-currencies, coins, and tokens such as those offered in so-called initial coin offerings (ICOs). Investors may be less skeptical of investment opportunities that involve something new or “cutting-edge”, or may get caught up in the fear of missing out (FOMO)”, it said in a statement obtained over the weekend.
For example, some investors may have FOMO, given the rise in prices of some digital assets in recent years, that they will miss an opportunity to become very wealthy.
“If you are considering a digital asset-related investment, take the time to understand how the investment works and to evaluate its risks. Look for warning signs that it may be a scam,” it clarified.
The US SEC revealed that it brought charges in a $2 billion Bitcoin-related investment scam. In SEC v. BitConnect, the SEC took enforcement action against the perpetrators of one of the largest Bitcoin-related ponzi-like schemes. According to the SEC, the defendants collected approximately 325,000 Bitcoin, worth approximately $2 billion at the time, from retail investors worldwide through a platform that encouraged investors to lend their Bitcoin to BitConnect.
The founder of the platform allegedly lured investors with false promises of profits to be generated by a purported proprietary Bitcoin trading “bot” and secretly paid a network of promoters around the world for their efforts to promote the lending platform through “testimonial-style” YouTube videos and other social media in multiple countries.
The US SEC also alleged that investors were rewarded for recruiting new victims through a pyramid scheme-like referral program. The SEC’s complaint noted that the platform’s website represented: “Investing on BitConnect platform, as you will find, is a safe way to earn a high rate of return on your investment without having to undergo a significant amount of risk”.
The platform allegedly paid investor withdrawals out of incoming investor funds and did not trade investors’ Bitcoin consistent with its representations, leading the platform to collapse and investors to lose massive amounts of money.
“When considering an investment opportunity, be cautious if you spot any of these red flags of fraud: guaranteed high investment returns. Promises of high investment returns with little or no risk are a classic warning sign of fraud; unlicensed/unregistered sellers; skyrocketing account values; sounds too good to be true. If an investment ‘opportunity’ sounds too good to be true, it probably is; fake testimonials.”
It further warned: “Before you hand over your money, verify that the individuals and firms offering an investment in securities are licensed/registered.
“Learn more about investments involving digital assets, including so-called ICOs, on Investor.gov, where you can find tips on investing wisely and avoiding fraud,” the US SEC’s statement read in part.
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