State securities regulators said investors should be cautious when considering suspicious offers of cryptocurrencies and digital assets, with the North American Association of Securities Managers calling fraudulent crypto schemes the "top threat to investors" by 2022. .
NASAA detailed the findings of a survey with regulators predicting the top threats to investor protection for the coming year. NASAA President and Maryland Securities Commissioner Melanie Senter Lubin said her state office received at least half a dozen calls a week from investors who had been scammed into crypto schemes.
“People are being scammed from left to right thinking they are buying cryptocurrencies. They get emails, they click on the email, ”he said. "It's a very similar approach to what there was when there were boiler rooms, but now it's the push of a button and you can reach thousands of people."
According to Co-Chair of the Compliance Section Committee and Alabama Securities Commission Director Joseph Borg, NASAA used data from the prior year's compliance report with responses from a shorter follow-up survey to create a "system of early warning "for the public, regulators and legislators. . The survey was closed on December 22 of last year and 46 of the 67 states and provinces within the association's jurisdiction responded.
About 35% of respondents cited investment schemes tied to crypto and digital assets as the top threat, according to Joseph Rotunda, vice chairman of NASAA's Compliance Section Committee and director of the Securities Board's Compliance Division. of the State of Texas. He said bad actors often follow the headlines, sculpting scams using offerings like crypto that have received a lot of media attention.
Borg and Rotunda noted that the price and market capitalization of cryptocurrencies had "exploded" during the pandemic, and regulators were seeing more COVID-related scams using digital currencies. Rotunda warned that technology barriers for investors to enter the crypto market have been lowered in recent years. Now, investors can trade crypto on their phones in a matter of minutes.
"At the same time, there has been a reduction in technological barriers for bad actors," he said. And that is dangerous. Now it is much easier to spoof a website. You don't need the technological knowledge that you had five, six or seven years ago ”.
Fraudulent offers related to promissory notes were the second highest potential threat, with 28% of respondents identifying them as a top concern. Scams using the internet and social media platforms ranked third with 10% of respondents, while schemes involving self-directed IRAs (SDIRAs) ranked fourth, with 8% of respondents viewing it as a problem. for investors. Regulators noted that while ARDS were often not fraudulent, they are often used to obfuscate scam artists' schemes.
The notes and SDIRAs were constant issues for state securities regulators, according to Rotunda; last fall, Borg revealed The number of state-run actions targeting ARDS more than doubled between 2019 and 2020, speculating that isolation from the pandemic left investors vulnerable to scams. Cryptocurrencies were also a focus for state regulators in 2020, with Rotunda reporting 125 investigations in total that year compared to 67 the previous year.
According to Borg, the only limit to crypto scams was the "scammer's imagination," with regulators seeing bogus websites, bogus return statements, and bogus secret messages for investors on how to invest in crypto, among other fraudulent tools. Lubin and Borg said that regulators generally did not see scams perpetrated by registered advisers striving to comply, but Borg noted that the dollars lost from scams were funds that did not make it to the legitimate advisory industry.
In its first speech as president of NASAA last year, Lubin, who was named WealthManagement.com Ten to look at In 2022, it had said that digital asset platforms were not "inherently bad" but could be used to manipulate investors into harmful practices.
Discussing the top threat predictions for 2022, Lubin said existing state and federal regulatory frameworks can adequately combat digital asset scams, though he acknowledged that it might be necessary to modify "around the margins" of existing regulations.
“A lot of people involved in the crypto space like to say 'it's confusing, we don't know what to do with regulation. It doesn't look good on us, '”Lubin said. “But it really suits them; they are making decisions not to comply, and there are some companies that are trying to comply. "
