The Texas Crypto Scam Massacre
Texas is taking the lead on cryptocurrency crackdowns in the U.S. The state issued four cease-and-desist letters to digital currency ventures in just over a month earlier this year, and the Texas State Securities Board is advising people on how they can avoid being sucked in by potential scams.
In Texas, No Shady Practice Left Unturned
In a state where enthusiasm for cryptocurrencies had been high, The board has recently published a 14-page report accumulating information gathered from a four-week investigation regarding the “sharp increase in the number of cryptocurrency investment opportunities being marketed to Texans.” The investigation began in late December last year, with investigations into the operations of up to 32 different cryptocurrency businesses.
Among the long list of findings covered in the report are:
- Companies not registered to sell securities in the state of Texas;
- Offers of unrealistic returns;
- Very few companies provided physical addresses;
- Classic Ponzi scheme behavior, including offering commissions to investors who recruit other clients.
Fool Me Once… Shame on Me. Fool Me Twice… Can’t Get Fooled Again
The document also warns that while terms are often interchanged, “tokens” and “coins” are not the same thing, and investors should be wary if they see both together. Tokens are typically regarded as securities under U.S. securities law, which means that companies offering them are required to undergo the proper registration protocol, or operate under a lawful exclusion.
Additionally, the report made it clear that cryptocurrencies remain new and potentially dangerous technological products, thus warranting further examination and caution. It explained that many of the scrutinized companies failed to mention the trading risks inherent in new and volatile assets:
“Left unsaid were the inherent risks of cryptocurrencies like increased national and international regulation; the high volatility in pricing, or the prospect of hackers penetrating security systems and disrupting an investment program or absconding with cryptocurrencies. In fact, at least five of the 32 promoters subject to the targeted investigations appear to have brushed aside concerns about risk by guaranteeing returns on their investment.”
No Scams on My Watch
From late December through early February of this year, the Texas State Securities Board issued four cease-and-desist letters to cryptocurrency ventures, including DavorCoin, for allegedly “violating sections of the Texas Securities Act by offering unregistered securities and misleading the public”; BitConnect, which the Board claimed was “soliciting investors for cryptocurrency-based programs that will deliver annualized returns of 100 percent or more,” and USI-Tech Limited, which the report says is an “overseas firm promising low-risk, triple-digit returns from investments tied to bitcoin mining.”
Other states that have since issued warnings and alerts to investors include Florida, North Carolina, Kansas, and Massachusetts. North Carolina’s Securities Division has issued a similar cease-and-desist letter just five days the board in Texas Board became active.
“There is a lot of hype surrounding cryptocurrencies, but the companies offering investments are often not disclosing all the information investors need to make informed decisions,” says securities commissioner Travis Iles. “Investors risk giving their hard-earned money to anonymous promoters hiding behind websites that have no intention of making good on their promises.”
The U.S. has proven difficult terrain for ICOs, crypto investment companies, and investors and those challenges see no sign of abating.
Are we likely to see more states make moves against cryptocurrencies? Post your comments below.
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