Release Number 7917-19
April 26, 2019
CFTC, SEC Issue Investor Alert
Guidance warns of websites related to digital assets
Washington, DC — The Commodity Futures Trading Commission’s (CFTC) Office of External Affairs (OEA) and the Security and Exchange Commission’s (SEC) Office of Investor Education and Advocacy (OIEA) released, Watch Out for Fraudulent Digital Asset and “Crypto” Trading Websites, an Investor Alert this week to warn investors to scrutinize investment opportunities through websites purporting to operate advisory and trading businesses related to digital assets. These websites often contain “red flags” of fraud including claims of high guaranteed returns and promises that the investments carry little or even no risk.
CFTC and SEC staff have recently observed investment scams where fraudsters tout digital asset or “cryptocurrency” advisory and trading businesses. In some cases, the fraudsters claim to invest customers’ funds in proprietary crypto trading systems or in “mining” farms. The fraudsters promise high guaranteed returns (for example, 20-50%) with little or no risk.
After the investors make an investment, typically using a digital asset such as Bitcoin, the fraudsters in some cases stop communicating with the investors altogether. These fraudsters can quickly send your money overseas, with little chance of you being able to get it back. Sometimes the fraudsters direct investors to pay additional costs (such as purported taxes) to withdraw fake “profits” earned from the investment. This is an example of an advance fee fraud scam, where investors are asked to pay a bogus fee in advance of receiving proceeds, money, stock, or warrants.
Both the SEC and the CFTC urge investors to lookout for these and other warning signs of investment fraud:
- Guaranteed” high investment returns. All investments have risk, and investors should question any so-called “guaranteed” return. Be wary of anyone who promises that you will receive a high rate of return on your investment, especially with little or no risk. Claims such as “risk-free”, “zero risk”, “absolutely safe”, and “guaranteed profit” are hallmarks of a fraud.
- Complicated jargon and language that is difficult to understand. Fraudsters often use complex new technologies to perpetrate investment schemes. They can claim their technology is highly secret. Investors should always be suspicious of hard to understand pitches that accompany promises of outsized returns. Sometimes the language includes spelling, grammar, and typographical errors that can make the description confusing – another red flag the “investment” could be a scam.
- Unlicensed sellers. Many investment frauds involve unlicensed individuals or unregistered firms. Check license and registration status on the SEC’s Investor.gov.
- Sounds too good to be true. If the investment sounds too good to be true, it probably is. Remember that investments providing higher returns typically involve more risk.
Visit CFTC.gov/bitcoin, the CFTC’s dedicated website for Bitcoin and Virtual Currency educational resources, which includes podcasts, brochures and the below customer advisories:
- Understand the Risks of Virtual Currency Trading
- Use Caution When Buying Digital Coins or Tokens
- Beware Virtual Currency Pump-and-Dump Schemes
- Beware of “IRS Approved” Virtual Currency IRAs
Visit the RED List, a resource that helps traders identify foreign entities that are not registered with the CFTC, but appear to be operating in a capacity that requires registration.
Call CFTC at 1-866-366-2382, submit a tip using this online form, or email us at [email protected].
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