In a bid to curtail the rising number of cryptocurrency-related scams and bogus investment schemes, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have enjoined investors to be more thorough with their due diligence before making investments in the crypto space.
The two agencies issued a joint warning on April 24, 2019, via the SEC’s Office of Investor Education and Advocacy and the CFTC’s Office of Customer Education and Outreach.
Spotting scammer techniques
The joint warning describes a myriad of techniques that scammers, who usually pretend to be legitimate crypto traders and advisory firms, use to prey on investors. One of these is the so-called advance fee fraud scam.
“In some cases, the fraudsters claim to invest customers’ funds in proprietary crypto trading systems or in ‘mining’ farms,” the warning explains. “The fraudsters promise high guaranteed returns (for example, 20-50%) with little or no risk.”
The warning goes on to state that once investors make an investment, typically in the form of crypto assets such as Bitcoin, the scammers will then cease all communication and disappear.
Watch out for warning signs
The SEC and CFTC’s joint warning also listed a number of red flags that investors should look out for before engaging in crypto-related deals.
These include guarantees of high returns, pressuring investors to buy immediately, unsolicited offers from unlicensed sellers, and documents filled with technical jargon designed purely to confuse investors.
The joint warning also urged potential investors to always use investor.gov to check the licenses of their potential investment partners against the SEC’s database. Those investors who believe they may have fallen victim to a scammer can also use the website to submit a report to the SEC.