North American Regulators Join Forces Against Crypto Scams

“Operation Cryptosweep” has resulted in 70 investigations and 35 enforcement actions since the beginning of May

by Deyana Laguna
22 May • 2.5 min
In Regulation

Regulators in the US and Canada have launched an international crackdown on some potentially fraudulent cryptocurrency investment schemes, members of the North American Securities Administrators Association (NASAA) announced on Monday.

NASAA is a group comprising regulators from territories, states and districts of the US, Canada, and Mexico, which aims to protect consumers who purchase securities or investment advice. More than 40 state and provincial watchdogs are participating in the so-called “Operation Cryptosweep.”

Cryptosweep was launched at the start of May and has so far resulted in nearly 70 inquiries and investigations, as well as 35 pending or completed enforcement actions related to Initial Coin Offerings (ICOs), cryptocurrency investment products and the entities behind them. More investigations are underway, the regulators added, noting that the task force has found approximately 30,000 crypto-related domain name registrations, many of which were made in 2017 and 2018, underlining the nascent industry’s fast growth.

The coordinated effort was first unveiled during an event hosted by the NASAA and later detailed in releases from the Tennessee Department of Commerce and Insurance (TDCI), as well as the Texas State Securities Board (TSSB).

“Although the task force’s work is far from complete, my suspicions have already been confirmed. The market for cryptocurrency investments is saturated with widespread fraud, and our work is only revealing the tip of the iceberg,” said Joseph Rotunda, director of the enforcement division at the TSSB and vice-chair of NASAA’s enforcement unit. He added that many promoters of cryptocurrency investment scams are using similar tactics, such as promises of improbably high returns. Yet they rarely provide any material information on their investment strategies.

 

Crypto Industry Under Scrutiny


Cryptosweep comes on the heels of a Wall Street Journal analysis of 1,450 cryptocurrency offerings that revealed nearly one in five firms raising money via ICO is using “deceptive or even fraudulent tactics” to attract investors. In 271 of the investigated coin offerings, the WSJ identified red flags, such as plagiarized investor documents, promises of guaranteed returns without risk, missing or fake information about the issuing company’s location and leadership.

In February, the US Securities and Exchange Commission (SEC) issued warnings to investors that many deals in the booming private market for cryptocurrencies could be violating securities laws. The agency revealed at the time that it had filed four separate cases involving alleged ICO fraud this year, with at least a dozen companies backing away from their projects when questioned by the regulator. Last week, the SEC also launched a website, HoweyCoins.com, touting a fake ICO, illustrating the signs of fraudulent token sales.