Agencies Target Blockchain Scams

Cryptocurrencies suffered from a turbulent year in 2018, and hundreds of “altcoins” disappeared from the markets. Crypto survivors include major coins, such as Bitcoin and Ethereum, which are still being widely used in spite of the ups and downs of their values during 2018. A reason for the “death” of many coins was poor management, but some Initial Coin Offerings (ICOs) were outright scams. Ernst & Young reported that “10% of $3.7 billion ICO funds are either stolen or lost.”

Criminals use a variety of fraudulent activities to kill coins and scam investors. Using a “pump-and-dump” strategy, fake investors manipulate coins by buying up massive amounts of ICOs and then dump them onto an exchange. This scheme “killed” many coins when they dropped in value. Other coins died from “exit” scams where companies attract investments with a false platform. After collecting enough money, the companies shut down their websites and abandon their coins.

SEC Shuts Down Titanium

The U.S. Securities and Exchange Commission (SEC) is cracking down on fraudulent misrepresentations in ICOs. The SEC focuses on retrieving investor funds with interest and penalties to companies that scam investors.

MintDice reported that in 2018 the SEC filed a complaint against Titanium Blockchain. The SEC charged the ICO with violating the commission’s registration and anti-fraud regulations. The SEC accused the founder of falsely claiming ties to large firms like Boeing, Disney, and PayPal.

Fighting Crypto Fraud

The North American Securities Administrators Association (NASAA) aims to dismantle scams by cryptocurrency firms. The NASAA launched Crypto Sweep in April 2018 that is investigating more than 50 firms.

To avoid falling for blockchain investment scams, a potential investor should carefully examine a company before investing in a coin. Meanwhile, companies should truthfully represent their products and provide a whitepaper to explain their platform and management to investors. Importantly, to determine the contract nature of an asset, a company should utilize the Howey Test.

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Alice is a member of the Florida Bar, and she focuses on business and technology matters in her law practice. She attended the Warrington College of Business at the University of Florida and earned a Bachelor of Science in Business Administration. After graduating, she earned a Juris Doctor at the Stetson University College of Law. During law school, she served as an Assistant Executive Editor for Stetson Law Review and also as a Staff Editor for Stetson Journal of Advocacy and the Law. She currently serves on The Florida Bar Journal/News Editorial Board.