Senior FBI investigator shares views on cryptocurrencies fraud risk

Nigel Frith
FBI building

A leading investigator has weighed in on the risks of fraud associated with initial coin offerings (ICOs) claiming that investors should “only invest what they can afford to lose”.

Steven M. D’Antuono, Section Chief of the FBI’s Financial Crimes Section within the Criminal Investigative Division, said in an interview with the online news site The Paypers that the key hallmark of ICO scams was misrepresentation of various kinds – including the experience levels of those running the scheme, as well as the return on investment that it could provide.

In a wide-ranging interview, he also said that it was up to potential investors in an ICO to carry out the required due diligence to prevent any problems from occurring.

“The fraud scheme may vary, but some of the consistent threads running throughout most ICO scams are misrepresentations regarding the principals’ experience, misrepresentations regarding industry’s interest in the ICO, and misrepresentations regarding the coin’s probable rate of return”, he said.

“Like any investment product, rates of return can never be guaranteed and if it sounds too good to be true, it probably is.”

“Potential investors in an ICO should perform due diligence on the principals of the entity as well as the individual offering the security, and the investor should confirm where the entity is physically located and which laws and regulations will therefore apply to that entity”, he added.

In the interview with The Paypers, which is a Dutch online magazine focusing on news from the finance industry, D’Antuono was asked how the FBI goes about finding fake ICOs.

His answer focused in part on the prevention methods that the agency uses, including co-operation with major regulators such as the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

He was also asked about his views about Bitcoin ATMs, which – as the interviewer pointed out – are believed to sometimes be used as vehicles for crypto fraud by scammers.

In his response, D’Antuono said that anyone who operated one of these machines needed to make sure that it was registered with the appropriate US government bodies.

“Innocent owners and legitimate businesses need to be certain that they are registered as a Money Service Business with the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, if they are owners of virtual currency ATMs or generally in the business of virtual currency exchange”, he pointed out.

“FinCEN proclaimed, and multiple Federal District Courts have agreed, that if an individual or an entity is engaged in the business of virtual currency exchange, they are subject to registration requirements. Failure to register is a violation of 18 US Code Section 1960 – Prohibition of unlicensed money transmitting businesses.”

Crypto fraud has also been on the agenda for the FBI on several occasions in the past.

Late last year, for example, it was announced that the agency had taken the CEO of major crypto website AriseBank into custody following claims that he lied about the outcome of the firm’s ICO.

Nigel Frith

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