Check out the SEC’s Howeycoins.com for insights into red flags that could indicate scammers are at work.
It was a tough weekend for bitcoin trading. Weekend losses racked up on news that Coinrail, a South Korean crytocurrency exchange, was hacked to the tune of $42 billion in value. Bitcoin prices hit a 2-month low on Sunday, June 10, according to The Street.
Fraud in the cryptocurrency markets is on the rise, and regulators are biting around the edges hoping to shed light on the best ways to rein in criminal activities. Prior to the weekend, and after repeated cases of fraud, marketMogul reports that the authorities of “South Korea tightened the requirements for exchanges, closing down some of them and promising more serious measure in the future.” South Korea will now need to make good on that promise.
Red flags are popping up all over. A recent analysis by The Wall Street Journal found hundreds of cryptocurrencies showing hallmarks of fraud. A WSJ review of documents related to 1,450 digital coin offerings raised 271 offerings with red flags that “included plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.”
Recently, the Securities and Exchange Commission has been issuing warnings to investors that many deals in the private market could be violating securities laws. The SEC launched HoweyCoins.com, an educational site for helping investors avoid scams in digital assets like cryptocurrencies and coin offerings.
Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” The Financial Industry Regulatory Authority offers the following tips to avoid falling for cryptocurrency-related stock scams:
- Do not say “yes” to cryptocurrency stock purchases from an aggressive cold caller
- Be suspect of anyone who makes guarantees that an investment will perform a certain way
- Use FINRA BrokerCheck® to the check registration status and information about people and firms selling opportunities
- Check the SEC’s EDGAR database to find out whether the company files with the SEC
- Be wary of stocks with huge spikes in price: this could signal potential manipulation or fraud
- Know where the stock trades and pay attention to any cautions associated with the stock
The takeaway
For these reasons and more, we as a firm cannot recommend these alternative strategies to our clients due to the lack of regulation and no real security platform considered hack-proof to protect buyers and sellers in these transactions.
There isn’t enough known about cryptocurrencies in general for it to gain legs among most independent advisory firms. Additionally, most broker/dealers and the custodians we work with do not currently allow cryptocurrency trading on their platforms.
For those clients seeking to invest in these alternative investment strategies, we recommend you exercise great scrutiny and do not invest in anything you are not willing to lose. Contact us if you would like to talk in more detail.
