A group of Canadian and US regulators joined forces to cleanse the cryptocurrency world of fraudulent initial coin offerings (ICOs) in one of the largest coordinated attempts to stop crypto scams.
Called Operation Cryptosweep, the task force unveiled last May 21 comprises more than 40 securities regulators from North America.
They revealed that Cryptosweep has set off more than 70 investigations into suspected fraudulent ICOs and crypto scams this month alone. Around 35 cases were either pending or have been decided, most of which resulted in cease-and-desist letters citing violations of the state securities laws.
Joseph Borg, president of the North American Securities Administrators Association (NASAA), shared that one way Cryptosweep finds fraudulent coin offerings is by behaving like a potential investor.
Borg, also the Alabama Securities Commission director, said:
“We’re putting ourselves in the shoes of investors. We’re seeing what’s being promoted to investors. And then we’re taking the next step and then we’re finding out whether they’re complying with securities laws.”
Just after the Bitcoin (BTC) hype which saw the digital coin’s price jump by more than 300 percent in three months, more investors are eager to fund another coin that might follow Bitcoin’s dramatic rise.
The eagerness of these investors, according to Borg, leaves them more vulnerable to scams and misinformation. This is a threat to the citizens under the jurisdiction of both countries. Borg shared:
“The persistent exploitation of the crypto exploitation of the crypto ecosystem by fraudsters is a significant threat to Main Street investors in the United States and Canada.”
Citing limited resources, Borg shared that the group of regulators will coordinate with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
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SEC’s HoweyCoin Demo
For SEC’s part, it demonstrated how easy one can create a fraudulent initial coin offering. The Commission released the HoweyCoin, a non-existent digital coin made to look similar with a very suspicious ICO which offers a too good to be true investment opportunity.
Jay Clayton, SEC Chairman, said:
“The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our Main Street investors. [We] want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud.”
According to SEC, it only took a small amount of time and little amount of manpower to build the HoweyCoin website. This level of easiness showed that almost anyone with even the simplest of technical resources can scam potential investors.
Owen Donley, chief counsel of SEC’s Office of Investor Education and Advocacy, said:
“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals. But fraudulent sites also often have red flags that can be dead giveaways if you know what to look.”
Too Many Scammers
Almost a fifth of ICOs reviewed by The Wall Street Journal (WSJ) triggered red flags commonly seen in fraud coin offering. According to the WSJ, 271 of the 1,450 ICO documents publicly available showed signs of fraud.
The red flags, as identified by the WSJ, were fake or non-existing team members, dysfunctional website, plagiarized whitepaper, and guaranteed ‘risk-free’ investment.
William Francis Galvin, Massachusetts’s secretary of the commonwealth, said:
“Not every ICO or cryptocurrency-related investment is fraudulent, but we urge investors to approach any initial coin offering or cryptocurrency-related investment product with extreme caution.”
While Cryptosweep and The Journal’s report have shown an abundance of fraudulent offers on the cryptocurrency market, legitimate and promising projects still exist. It is the investors’ responsibility to choose the right one.
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