Hand holding purple bitcoin againct abstract background.
If you are thinking about investing in stocks of companies that promote high returns associated with cryptocurrency, be careful. Do your research and invest only the money you can afford to lose.
In an emerging sector like cryptocurrencies, it is not unusual to see both legitimate startups and not-so-legitimate players. According to the 2019 BBB ScamTracker Risk Report, cryptocurrency scams are the second riskiest in the nation with respect to the prevalence of victims and lost dollars.
These unreputable startups often make glorified claims about new cryptocurrency-related products and services, including blockchain technologies and Initial coin offerings - in an effort to raise the market price of its shares. The rumor around cryptocurrency companies allows scammers to launch fraudulent companies that lack transparent financial reporting. Additionally, scammers will mimic the successful business models of legitimate companies to mislead investors and steal their money.
Beware of these common cryptocurrency scams:
- Cryptocurrency exit scam: These scams trick consumers into investing in a new form of cryptocurrency. Scammers tell investors that they are guaranteed to make a big profit to generate the most funds possible. Some fraudulently claim to be affiliated with famous investors or advertise online. Then they disappear with all the money.
- Fake websites or apps: The internet is full of fake websites and smartphone apps that supposedly allow the exchange of cryptocurrencies. They keep victims hooked by displaying fake charts and exchange rates that make their investments appear to be growing, often convincing victims to invest more. However, when users try to withdraw their money, they cannot.
- Social media scams: Scammers use stolen social media accounts to pose as friends of their victims. They communicate through direct messages or post publications offering investment opportunities. Some even use video messages recorded by the original account owner to mislead victims. Before the alleged investment can be completed, the scammers require their victims to provide login credentials to their social media accounts, as well as a video promoting the cryptocurrency investment.
- Identity fraud: Phishing emails and text messages urge recipients to click links or download attachments promoting cryptocurrency investment. A few phishing attempts have even appeared on Discord, a popular messaging platform among aspiring and active investors. These schemes offer rewards such as free investments to attract victims. Others target current investors with claims that their accounts have been hacked in an attempt to steal the login credentials of their cryptocurrency wallets.
- Fake celebrity endorsements: Many celebrities, as well as technology and financial influencers, are involved in investing in cryptocurrencies, and some scammers advertise their services through fraudulent endorsements. Source: Greater Maryland BBB
Don't be fooled by unrealistic returns and claims predictions made through press releases, spam, and telemarketing calls or those posted online or on social media. These stocks may be signs of a classic "pump and dump" stock fraud. For more information, see this Anatomy of a Pump and a Dump infographic.
Follow these tips to avoid cryptocurrency investment scams
If you are contemplating a cryptocurrency-related equity investment, here are six tips to help you stay away from scams:
- Don't Say "Yes" To An Aggressive Cold Caller's Crypto Stock Purchases, even if the claims seem plausible, especially if the recommended stocks are priced too low. Don't feel guilty about hanging up. Not answering at all, or hanging up the phone, are generally the best and safest responses to a cold caller or anyone aggressively offering low-priced stocks or other investment opportunities.
- Be suspicious of anyone who offers guarantees that an investment will work in a certain way.. Also, beware of aggressive sales pitches that encourage you to "act now."
- Research opportunities before investing. Use FINRA BrokerCheckยฎ to check the registration status of individuals and companies promoting these opportunities and for additional information.
- Find out if a company files its applications with the Securities and Exchange Commission or with the Canadian Securities Administrators. In the United States, see the SEC EDGAR Database and, in Canada, consult the CSA SEDAR database. Read the reports and verify any information you have heard about the company. But remember, just because a company has registered its securities or files reports with the SEC or CSA does not mean that the company will be a good investment overall, or the right investment for you.
- Beware of stocks with large spikes in price. This could indicate possible tampering or fraud.
- Know where stocks are traded and pay attention to precautions associated with stocks. Most stock pump and dump schemes tend to be listed on an over-the-counter (OTC) trading platform like OTC Markets, which provides icons to alert investors to concerns associated with a given company. These include a stop sign to indicate that the company cannot or will not provide important information to regulators, exchanges or OTC markets, and also a skull and crossbones to warn that security, the company or a person who controls the business could be involved in a spam campaign, questionable marketing, regulatory action, or more.
Sources: BBB.org, BBB Institute for Marketplace Trust, FINRA, BBB of Greater Maryland
To learn more about investment scams, read FINRA's Investor Alert: Stock Spams and scams. If you have been the victim of a scam, please report it to BBB Scam Tracker. To find a company you can trust, see BBB.org.
