Combatting Cryptofraud

June 14, 2018

As anticipated, it was only a matter of time until cryptocurrencies would be hit with fraud. Given their growing popularity and mainstream adoption from individuals and major businesses alike, fraudsters have entered the cryptocurrency game with a flurry of fraudulent initial coin offerings (ICOs), claims about mining services, and shady practices on trading platforms. In an analysis of 1,450 cryptocurrency offerings, the Wall Street Journal found 271 with red flags that include plagiarized investor documents, promises of guaranteed returns, and missing or fake executive teams. 

But regulators are catching up, with many local law enforcement agencies in North America cracking down on cryptocriminals. Just recently, the North American Securities Administrators Association (NASAA) announced a new effort known as “Operation Cryptosweep,” where NASAA members from more than 40 jurisdictions have spearheaded almost 70 inquiries and investigations and 35 pending or completed enforcement actions related to ICOs or cryptocurrencies since the beginning of May. According to Investment News, Alabama, British Columbia, Colorado, Massachusetts, Missouri, New Jersey, New York, North Carolina, Nova Scotia, Quebec and Texas are among the states and provinces taking action with Operation Cryptosweep.

Relying on regulators alone won’t be able to thwart cryptofraud. It’s important that potential investors and businesses educate themselves. Here are three tell-tale signs of fraudulent companies:

  • 1) Claims of 100% Safety and No Risk: The only way you shut down any chance of risk is not conducting a transaction at all. Even the safest of financial transactions have some element of risk, so beware of any site touting “there is no risk,” and “everything is 100 percent secure,” as noted by fraudulent site Wind Wide Coin.
  • 2) Stock Footage Galore: What do Supreme Court Ruth Bader Ginsburg, Jennifer Aniston, and Prince Charles all have in common? Stock images of them have all been used to enhance the legitimacy of very fake cryptocurrency companies. PCMag reported that Bitcoin mining platform Leadinvest used a 2005 photo featuring Notorious RBG for its code of ethics section.
  • 3) Guaranteed Returns: We hate to be cliché, but if it sounds too good to be true, there’s a 99 percent chance it is. That’s what many users discovered after falling for a fake bitcoin site created by the Securities Exchange Commission. Dubbed “HoweyCoins” in honor of the Howey test used by law enforcement to categorize a transaction as an investment contract, the fake cryptocurrency site guaranteed returns. Tempted users to get in on this “deal” were then redirected to educational materials. 

It’s not just law enforcement or government entities fighting crime – businesses are participating in their fair share as well. Kount clients PetSmart and Micro Center have not only stopped fraud within their own systems but also, in the process, prosecuted criminals through the justice system. Learn more about their harrowing journey in the white paper “How To Catch and Prosecute Fraudsters”.