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FINRA Warns About Cryptocurrency Related-Fraud

The Financial Industry Regulatory Authority is warning investors interested in buying shares in companies touting potentially high returns related to cryptocurrency-related activities, but that are unable to “back up such claims,” to be on the lookout for potential financial fraud.

The self-regulatory organization provided a number of “tips” for avoiding a stock scam involving cryptocurrencies, including:
• Conduct your own research before making any investments.
• Watch out for “unrealistic predictions” or claims of results even if they are published online or issued via press release.
• Be wary of “aggressive” cold caller-sourced solicitations, especially if the stocks being recommended are “very low-priced.”
• Be careful of anyone promising guaranteed or specific returns.
• Consider “pushy sales pitches” or pressure to “act now” mandates to be red flags.
• Check FINRA’s BrokerCheck to see if the representative or firm is registered or to find out of they have been sanctioned for any alleged violations in the past.
• Look at the Securities and Exchange Commission’s Edgar database to see if the company that is selling the stock has submitted filings with the regulator. That said, registration of a security with the SEC is no guarantee that the investment is a good one.
• Watch out for stocks that see big price jumps because fraud or stock rigging may be involved.

Already, the US Securities and Exchange Commission has suspended trading in different securities over uncertainties regarding the accuracy of activities related to cryptocurrencies. Just this week, the regulator temporarily halted trading in shares of The Crypto Co. after its stock price increased by over 2,700 this month amidst concerns about “potentially manipulative transactions” and the “accuracy and adequacy of information” provided to investors and regulators.

Earlier this month, SEC Chairman Jay Clayton issued a public statement on cryptocurrencies, which is a fast-growing market. Clayton noted that the cryptocurrency market had “substantially less investor protection” than the more traditional markets, which increases the chances of ‘fraud and manipulation.” He too warned about promoters guaranteeing returns, “too good to be true” investments, and heavy pressure sales tactics.

The SEC chairman cautioned that cryptocurrency markets can go beyond US borders, which means investors’ money maybe going abroad. This potentially increases the risks while decreasing the chances of US market regulators being unable to recover funds or go after wrongdoers.

If you are an investor in The Crypto Co. or the stock of another company touting cryptocurrency-related activities or services, contact Shepherd Smith Edwards and Kantas, LTD LLP today to speak with one of our experienced investor fraud lawyers.

Don’t Fall for Cryptocurrency-Related Stock Scams, FINRA

Statement on Cryptocurrencies and Initial Coin Offerings, SEC, December 11, 2018

SEC Suspends Trading in The Crypto Company After 2700% Rise in Its Stock Price, Stockbroker Fraud Blog, December 20, 2017

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Westport Capital Markets LLC is Accused of Undisclosed Markups as Investors Lose Over $1M, Stockbroker Fraud Blog, December 11, 2017

Royal Bank of Scotland Settles Mortgage-Backed Securities Fraud Case Brought by Pension Funds for $125M, Institutional Investor Securities Blog, December 29, 2017

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