Crypto scams top regulators’ list of threats

Frauds and scams involving crypto and other digital assets are the leading threat to investors in 2022, according to the North American Securities Administrators Association (NASAA).

The umbrella group of U.S. state and Canadian provincial regulators released its annual list of the top investor protection concerns, based on surveys of the regulators themselves.

Schemes that are linked to crypto (and digital assets generally) were the leading issue, followed by promissory notes frauds, social media scams, and schemes targeting self-directed retirement accounts.

“By far, NASAA’s securities regulators revealed that investments related to cryptocurrencies and digital assets is our top investor threat,” said Joseph Borg, Alabama Securities Commission director and co-chair of NASAA’s enforcement committee, in a release.

“Stories of ‘crypto millionaires’ attracted some investors to try their hand at investing in cryptocurrencies or crypto-related investments this year, and with them, many stories of those who bet big and lost big began appearing, and they will continue to appear in 2022,” he said.

NASAA said that the added uncertainty about where digital assets fit within the traditional regulatory framework may make it easier for fraudsters to dupe investors.

“Before you jump into the crypto craze, be mindful that cryptocurrencies and related financial products may be nothing more than public facing fronts for Ponzi schemes and other frauds,” said Joseph Rotunda, Texas State Securities Board enforcement division director, and vice-chair of NASAA’s enforcement committee.

“Investments in cryptocurrency trading programs, interests in crypto mining pools, crypto depository accounts and securitized tokens should be seen for what they are: extremely risky speculation with a high risk of loss,” he added.

In addition to crypto, the regulators noted that exempt market offerings remain a particular threat, as do investments promoted through social media.

“Unregistered private offerings generally are high-risk investments and don’t have the same investor protection requirements as investments sold through public markets,” Borg said.

NASAA also provided advice to investors on protecting themselves and avoiding scams.

“The most common telltale sign of an investment scam is an offer of guaranteed high returns with no risk. It is important for investors to understand what they are investing in and with whom they are investing,” said Melanie Senter Lubin, president of NASAA and Maryland Securities Commissioner.

“Education and information are an investor’s best defense against investment fraud,” she said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.