FINRA Warning: Initial Coin Offering (ICO)-Related Scams
While working as a financial adviser for Wells Fargo in Florida, Paul Zoch has been accused of helping to lure investors into a fraudulent movie financing scheme and of mishandling other clients’ funds. For Wells Fargo, the movie scam and other charges are merely the...read more
Cryptocurrency is a digital, decentralized form of currency that uses encryption (hence the prefix “crypto-”) to give users more privacy than transactions conducted using checks, credit cards, or debit cards. This partial anonymity – combined with massive increases in value over the past few years – has attracted the attention of investors across the United States. Despite recent dips in performance, popular cryptocurrencies such as Bitcoin (BTC) remain relatively strong, with one Bitcoin equivalent to roughly $7,700 in USD as of late July 2018. While pursuing what seem like financial opportunity, many investors have been drawn into cryptocurrency investment scams, such as risky Initial Coin Offerings (ICOs). If you were scammed in a Bitcoin fraud scheme, the FINRA arbitration lawyers of Epperson & Greenidge may be able to help you recover compensation for your losses.
ICOs and Bitcoin Investment Scams to Watch Out For
Bitcoin is the best-known, but not the only, type of cryptocurrency accessible to investors. Other popular examples of cryptocurrency include Dash (DASH), Ethereum (ETH), Litecoin (LTC), Monero (XMR), Ripple (XRP), and Zcash (ZEC). While many cryptocurrency scams revolve around Bitcoin, investors should be on alert when investing in any type of cryptocurrency or related product.
Why must investors be so vigilant when dealing with cryptocurrency? Because unfortunately, cryptocurrency scams have become so prevalent that in December 2017, the Financial Industry Regulatory Authority (FINRA) – an organization that regulates hundreds of thousands of brokers and brokerage firms across the nation – posted a warning to its website cautioning investors against the dangers of cryptocurrency-related stock scams.
One of the major risks highlighted by FINRA is something called an “Initial Coin Offering,” or ICO, commonly used by startups looking to raise money for the new business. Though some are legitimate, ICOs have become widely associated with fraud, meaning investors should approach them with extreme caution.
An ICO works by creating a new digital currency, which investors can then purchase online, whether using USD, BTC, or any other currency. However, there are two problems with this system.
As FINRA’s website explains, “[S]ome sellers of ICOs might lead buyers to believe that they can expect a return on their investment or… participate in a share of the returns provided by the project” being funded. However, this is often not the case. Additionally, FINRA notes that investors are often led to believe that they will have “an opportunity to sell the tokens on a secondary market or an online [cryptocurrency] exchange,” when in reality, this is “not guaranteed.” In fact, multiple businesses have already had their trading privileges suspended by the U.S. Securities and Exchange Commission (SEC), which regulates various stock exchanges, because the SEC “questioned the accuracy of” documents involving ICOs.
While controversial, ICOs are not the only potential pitfall that Bitcoin and cryptocurrency investors should be aware of. Some scammers use more conventional methods to defraud investors, such as making cold calls or sending out spam emails that promise high returns. Regardless of how often or rarely you make new investments, you should nevershare your personal or financial information online or over the phone – even if the offering sounds low-risk and legitimate. You should also remember that, while cryptocurrency offers potential for reward, it also carries some significant financial risks, including the following:
- You cannot undo or reverse any payments you make using Bitcoin.
- It is easy for hackers and criminals to misrepresent themselves as Bitcoin traders or exchanges.
- If tax or financial laws change in the future, Bitcoin may no longer be an accepted form of currency, rendering any gains worthless.
- Unlike traditional banks or credit unions, cryptocurrency exchanges do not offer any form of insurance or protection.
FINRA Arbitration Lawyers Representing Victims of Bitcoin and Cryptocurrency Fraud
If you lost money because you invested in a scam ICO, had your information stolen, or because your financial advisor made recommendations to make unsuitable investments in cryptocurrency, there may be a way to recover your losses. Depending on the circumstances that caused your financial losses, you could have grounds to file a claim with FINRA, which gives you the opportunity to present your evidence, tell your side of the story, and potentially, obtain compensation.
There are two ways to resolve a dispute through FINRA: mediation, which is quicker and more informal, and arbitration, which is similar to a court hearing. While mediation is sometimes adequate to resolve disputes, it is often necessary to enter arbitration proceedings, particularly if the dispute is complex or substantial losses are involved. If your claim is successful, you may be awarded compensation by a FINRA arbitrator or panel of arbitrators.
At Epperson & Greenidge, LLP, we are experienced FINRA attorneys who have successfully represented numerous investors in claims involving Bitcoin and other cryptocurrencies. If you need help understanding your legal options after being defrauded in a Bitcoin scam, our attorneys can help you explore which steps to take next. For a free consultation, contact us online, or call our law offices at (877) 445-9261 today.