Feds On The Hunt For Misbehaving Crypto Startups

May 31, 2018

SEC Seal to accompany blog post about SEC cryptocurrency crackdown The feds are hunting down “potentially deceitful cryptocurrency investment products” and “suspicious” initial coin offerings. Word on the curb is that it’s “the largest coordinated crackdown to date by state and provincial officials on bitcoin scams.” According to reports, authorities from 40 jurisdictions have targeted about 70 entities, so far; approximately 35 cases are already underway.

How did the cryptocurrency sting work?

So, how did this mass crypto crackdown go down? Here’s the Washington Post’s take:

Posing as members of the public, investigators discovered roughly 30,000 cryptocurrency-related domain names in recent weeks, most of which were registered in the past year as the price of bitcoin soared past $19,000. Many of the alleged scams use fake addresses, slick marketing materials and promises of over 4 percent daily interest, regulators said. A few have even used unauthorized photos of high-profile individuals, such as Supreme Court Justice Ruth Bader Ginsburg, to portray themselves as aboveboard.

After receiving the cease-and-desist letters warning of illegal activity, the targets of the investigations typically have up to a month to file a response, depending on the jurisdiction, Borg said. Some states allow for a hearing before the state securities commission, and an appeal to a court or administrative law judge. Regulators could also take the schemes to court. But regulators expect many sites to shut down voluntarily or amend their practices to comply with securities laws.

Legal Lines Allegedly Crossed In These Cryptocurrency Crackdown Cases

  1. Violations of state securities laws;
  2. Targeting of unsuspecting investors;
  3. Failure to adequately convey investment risks to potential investors; and
  4. Deceptive online marketing (i.e., using pictures of famous people on websites; passing off stock photo images as actual facilities, et cetera).

Joseph Borg, director of the Alabama Securities Commission, explained:

“We’re putting ourselves in the shoes of investors. We’re seeing what’s being promoted to investors. And then we’re taking the next step and then we’re finding out whether they’re complying with securities laws.”

Connect With A Cryptocurrency Lawyer

It’s important to remember that not every fintech, or cryptocurrency startup is a scam. And not every initial coin offering is shady. Blockchain technology is here to stay, and startups who legally establish their footing now will be in the best position moving forward.

The Gordon Law Group consults with startups, investors, and entrepreneurs on various blockchain, cryptocurrency, and fintech legalities. To learn more about our practice, and watch some videos on the topic, head to our Facebook page.

If you’re ready to talk, we’re here to help you safely navigate the cryptocurrency legal maze.


Contact Gordon Law Group

Submit your information to schedule a confidential consultation

Recommended Reading: