A regulatory body based in the US state of Texas issued nine administrative orders against cryptocurrency trading offers which it believed were fraudulent in nature, a report published this week has shown.
The Texas State Securities Board issued the orders during a single six-month period at the start of 2018.
The board has now issued cease and desist orders against some of the companies it believes have participated in the fraudulent activity. It claims that a site known as BitConnect presented itself to investors as a lending platform, but they allege that it was, in fact, an earnings scheme. Another of the alleged scams, known as DavorCoin, claimed that investors would make a profit of $107,217 within a few months if they invested just $30,000.
There is a political dimension to the allegations, too. One company alleged to be involved, known as LeadInvest, claims that it counts American Supreme Court Justice Ruth Bader Ginsburg as one of its advisers.
The fraudulent activity was carried out mostly online, and the report said that advertising and social media were largely to blame for the problems.
In a statement, the State Securities Board pointed out that the investigation was a milestone, and that the regulator had broken new ground.
“Texas Securities Commissioner Travis J. Iles entered nine administrative orders against some of the most notorious promoters of cryptocurrency investments, almost all of whom were fraudulently using online advertisements, social media, and other solicitations to attract Texas investors,” the statement read. “In December 2017, Texas became the first state securities regulator to issue an administrative order against a company selling illegal investments tied to cryptocurrency.”
Commissioner Iles himself said that the investigation reflects the fact that there are several fraudulent investment schemes occurring in Texas. “The State Securities Board’s enforcement actions reflect the breadth and complexity of the investment schemes that try to defraud Texas investors,” he said. “We are committed to preventing fraud and punishing unscrupulous promoters through both criminal and administrative actions,” he added.
Since the investigation was launched, there has already been some movement.
One of the firms targeted by the State Securities Board, known as Investors in Crypto LLC, has now told regulators that it plans to no longer trade until it is complying with all of the requirements placed on it by state law.
The move by the Texas regulator is part of a wider investigation into this sort of behaviour by a range of North American law enforcement organisations.
Some of the amounts involved in the alleged scams are very large. The BitConnect earnings scheme, for example, is believed to have had a total value of $4 billion US dollars – suggesting that the scale and scope of the scams is large.
The North American Securities Administrators Association (or NASAA) currently has around 70 open investigations into fraudulent cryptocurrency schemes. It looks into everything from initial coin offerings (ICOs) to the way that crypto schemes are sometimes presented with misleading information. Called “Operation Cryptosweep,” the investigation covers nearly fifty different jurisdictions and operates in Canada as well as in the USA.