- Recent Price Run-Up and Ongoing Pandemic Should Put Investors on High Alert for Scams Using Virtual Currencies
- AG James Reminds Industry That Registration Requirements Apply in New York for Those Dealing or Advising in Virtual Currencies
In her ongoing efforts to protect New York investors, New York Attorney General Letitia James today issued two alerts in response to the “extreme risk” posed to New Yorkers investing in virtual or “crypto” currencies. Attorney General James first issued an investor alert urging “extreme caution when investing in virtual currencies." Additionally, Attorney General James issued an alert to industry members, reminding brokers, dealers, salespersons, and investment advisors that they could potentially face “both civil and criminal liability” if they do not fulfill their obligations regarding registration with the state of New York when doing business with virtual currencies.
“Too often, greedy industry players take unnecessary risks with investors’ money, but, today, we’re leveling the playing field and issuing alerts to both investors and industry members across the nation,” said Attorney General James. “All investors should proceed with extreme caution when investing in virtual currencies. Cryptocurrencies are high-risk, unstable investments that could result in devastating losses just as quickly as they can provide gains. We will not hesitate to take action against anyone who violates the law. Two weeks ago, we filed a lawsuit to shut down Coinseed’s fraudulent operation. Last week, we ended both Bitfinex and Tether’s illegal activities in New York. And now, today, we’re sending a clear message to the entire industry that you either play by the rules or we will shut you down.”
Alert to Investors
Today’s investor alert recommends extreme caution when investing in virtual currencies. Trading in the current market exposes investors to risks, such as wild price swings, conflicts of interest among trading platform operators, and increased chances of market manipulation. Further, even ‘legitimate’ investments in virtual assets are subject to speculative bubbles, and the continued tragedy of the coronavirus disease 2019 (COVID-19) public health crisis has put law enforcement on high alert for scammers and unscrupulous industry players using deceptive tactics to gain confidence with false promises of high or even guaranteed returns. Additionally, given an individual’s ability to hide their true identity when trading virtual currency, many criminals use cryptocurrencies in their schemes, including for money laundering, human trafficking, blackmail, illicit financing, and tax evasion.
Today’s investor alert offers New Yorkers five common sense tips for avoiding virtual currency investments frauds, and provides a link to the Office of the Attorney General’s (OAG) Investor Protection Bureau complaint form.
Alert to Industry Members
For over a quarter of a century, commodity broker-dealers, salespersons, and investment advisors doing business within or from New York have been required by statute to register with the OAG. Last year, in a case brought by the OAG, the Appellate Division held that a virtual currency was a commodity under the Martin Act, a ruling consistent with that of other courts and agencies. Therefore, today’s industry alert reminds all brokers, dealers, salespersons, and investment advisors that they must register with the OAG’s Investor Protection Bureau if they are doing business in New York, unless they qualify for an exemption. The OAG reminds industry members that those parties who are obligated to register, but do not, are subject to both civil and criminal enforcement under the law.
Those in the industry who have information regarding illegal or unethical behavior in trading of virtual currencies are encouraged to file an anonymous, secure, and confidential transmission (including any documents) through the OAG’s whistleblower portal.
Today’s industry alert comes on the heels of Attorney General James’ lawsuit, two weeks ago, against Coinseed, Inc. and its executives, which — in operating a virtual currency trading business in New York — carried on as unregistered broker-dealers for more than three years while collecting over $1 million in investors’ assets. Attorney General James seeks restitution for the thousands of defrauded investors, disgorgement of already raised funds with interest, permanent injunctions against all the defendants to immediately stop their illegal behavior, and the full closure of Coinseed’s business operations, among other remedies.
Additionally, just last week, Attorney General James announced an agreement with Bitfinex, Tether, and related entities that ends all their trading activity in the state of New York, imposes an $18.5 million penalty on the companies, and increases transparency. In the case of Tether, the company falsely represented that each of its stablecoins were fully backed, one-to-one, by U.S. dollars in reserve at all times. However, an investigation by the OAG found that iFinex — the operator of Bitfinex — and Tether made false statements about the backing of the “tether” stablecoin, and about the movement of hundreds of millions of dollars between the two companies to cover up the truth about massive losses by Bitfinex.
