A state regulator’s office in the US has issued three cease and desist letters against firms allegedly promoting what it describes as “unregistered and potentially fraudulent” ICOs, or initial coin offerings.
The Securities Commissioner in the state of North Dakota said that the letters, which came as a result of a probe by the Department’s ICO Task Force, may “pose a risk to North Dakota investors”.
The first firm to be named by the Commissioner, Crystal Token, claims that it offers an ERC 20 token as part of the Ethereum blockchain.
However, despite their claims, the firm is not registered with the Securities Commissioner – meaning they do not have the relevant permissions to sell cryptocurrency.
Crystal Token has also been telling potential investors that returns as high as 2% per day are possible. The Commissioner’s office, however, described such claims as “allegedly fraudulent statements with claims of excessive unsubstantiated rates of return on investment”.
Information about those who run the firm is also not widely available.
The second firm, Advertiza Holdings, is offering a cryptocurrency called Tizacoin, which is also known as TIZA. As the name of the firm suggests, this cryptocurrency is related to digital advertising and offers investors a chance to enter that space.
However, its website makes what the Commissioner’s office alleges are false allegations about the nature of the product. The site suggests that the item is a utility token, for example, when it is, in fact, better described as a security.
Again, Advertiza Holdings does not have the appropriate licenses for trading such items in North Dakota.
The Commissioner’s office also claims that while Advertiza Holdings says it has filed with the Securities and Exchange Commission under the terms of federal Rule 506c of Regulation D, this is not actually the case.
Finally, Life Cross Coin – or Lifecrosscoin, as it is also known – faces the most severe accusations from the Commissioner’s office.
It is allegedly rooted in the same Berlin-based IP address as “ransomware, trojans, and identity fraud”, and its website supposedly contains “fake names” for the executive team.
The site, which describes the potential return on investment a reader can make as “huge”, claims that the coin is part of a charitable donation scheme.
As is the case with the first two firms, this firm is also not licensed to sell securities to residents of North Dakota.
Karen Tyler, the current North Dakota Securities Commissioner, said that she recommended investors exercise a high degree of caution when making investments in the crypto space.
“The continued exploitation of the cryptocurrency ecosystem by financial criminals is a significant threat to Main Street investors”, she said in a statement.
“In formulaic fashion, financial criminals are cashing in on the hype and excitement around blockchain, crypto assets, and ICOs – investors should be exceedingly cautious when considering a related investment.”
The moves from the Securities Commissioner are part of Operation Cryptosweep, a cross-border project by more than 40 organisations in the US and Canada to better regulate securities and target fraud in the cryptocurrency industry.