Scam of the day – October 4, 2017 – SEC brings charges against alleged cryptocurrencyscammer

Bitcoins and other cryptocurrencies offer great promise both for legitimate financial transactions and scammers.  They are not simple and no one should get involved with Bitcoins unless they truly understand how they work.  Investing in something because it appears good when you haven’t thoroughly investigated both the person offering the investment and the investment itself is a recipe for disaster.  Just ask the victims of Bernie Madoff.

Earlier this week the Securities and Exchange Commission (SEC) brought charges against Maksim Zaslavskiy and his companies REcoinGroup and DRC World, also known as Diamond Reserve Club.  The SEC alleges that Zaslavskiy and his companies defrauded investors in these companies through initial coin offerings (ICOs) which are a way to raise capital through cryptocurrencies.  In this case, the SEC alleges that Zaslavskiy sold unregistered securities in his companies and offered non-existent cryptocurrencies.  In addition, the SEC says that numerous representations made to investors to induce them to invest in the companies were totally false.

ICOs are being used now by companies that are too small to do an initial public offering (IPO) of stock and instead offer cryptocurrencies, the price of which is represented to rise with the value of the company.  ICOs are not a scam, but according to the SEC, in this case they were.

TIPS

Again, you should never invest in anything unless you have investigated the person offering the investment and the investment itself.  ICOs in particular are quite complicated.  The SEC has warned investors to be wary of ICOs involving companies that have little financial history or are not required by federal regulations to file financial disclosures. It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made.  You also may want to check out the SEC’s investor education website at www.investor.gov.

Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.

You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.

Here is a link to the SEC’s warning about possible problems you can encounter when investing in Bitcoins or other cryptocurrencies.

https://www.sec.gov/oiea/investor-alerts-bulletins/investoralertsia_bitcoin.html

Scam of the day – September 26, 2017 – North Korea hacking Bitcoin exchanges

A recent report of security company FireEye disclosed that North Korea’s state operated cybercriminals have moved beyond their attacks on individual companies and the international banking system to cryptocurrency exchanges.  Cryptocurrency is the name for digital currencies first created in 2009 that have become increasingly popular. Perhaps the most well known cryptocurrency is Bitcoin.

FireEye reported about continuing cyberattacks on cryptocurrency exchanges that began earlier this year.  As with so many computer crimes, the attacks begin with spear phishing emails carrying malware that when downloaded enabled the hackers to steal from individual accounts.

It can be expected that these attacks will increase.  In fact, my prediction is that while there is little likelihood of a missile attack by North Korea on the United States in the foreseeable future, we can well expect a significant increase in cyberattacks by North Korean cybercriminals on vulnerable American companies, financial institutions and even governmental agencies.

TIPS

Bitcoins and other cryptocurrencies are popular with many people due to the anonymity involved with cryptocurrency transactions as well as the lack of fees involved in their use.  However, digital currencies, just as everything else tied to computers carry inherent vulnerabilities.  The best ways to avoid problems is to take particular care in choosing where you store your Bitcoins online.  Many Bitcoin exchanges have had security breaches and will always be a prime target for hackers.  Additionally, you should use not just a strong password, but also dual factor authentication to provide greater security, encrypt your wallet and backup your entire wallet.  Finally, make sure that your Bitcoin software is updated with the latest security patches as soon as they become available.

Scam of the day – November 18, 2014 – Bitcoin Ponzi scheme

Bitcoins are the increasingly popular digital currency that is privately issued and not supported by any government in the world.  It is, however, used by many people throughout the world.  Recently, Trendon Shavers was arrested in Texas and charged with securities and wire fraud in relation to his offer of 7% weekly interest on bitcoins deposited with his Bitcoin Savings and Trust Company.  This promise of an annual percentage interest of 3,641% managed to lure investors to turn over to him 740,000 bitcoins valued at 4.5 million dollars.  Shavers advertised his scheme on the internet bulletin board “Bitcoin Forum” and other online discussion groups.  He claimed that using his market-arbitrage strategy that included lending and trading bitcoins on online exchanges.  His complex and non-understandable strategy mirrors the original Ponzi schemer, Charles Ponzi who used a similar scheme involving international stamps.  As with Ponzi, Shavers appeared to be legitimate by paying profits to early investors.  However, as with Ponzi himself, there were not profits and the early investors were paid with the funds being contributed by newer investors to make the phony investment scheme appear legitimate.  Shavers, like Ponzi was extremely persuasive and according to prosecutors, at the height of his scam, he personally controlled 7% of the world’s bitcoins.

TIPS

Due to the fact that bitcoins are totally unregulated by any government, they are a questionable investment.  Add to that fact, their digital character and its susceptibility to hackers and fraud and you have a dangerous investment at best.  Shavers is just the latest in a long line of Ponzi schemers who make promises that are too good to be true backed up by an incomprehensible formula for investment success. You should always remember the prime rule of investing which is to never invest in anything or any investment strategy that you do not totally understand.

Scam of the day – May 15, 2014 – SEC issues bitcoin warning

Recently the Securities and Exchange Commission (SEC) has issued a new warning about the risks of Bitcoins and other forms of virtual currencies.   Bitcoins are a system of digital currency that can be used throughout the world.  Unlike other online payment systems such as PayPal, there are no charges or commissions for using Bitcoins.  Some speculators have gone into trading Bitcoins, which is indeed a risky investment.  Unfortunately, Bitcoins are not a true currency issued by a government and regulated by any nation.  Also, unfortunately, the security of the major Bitcoin exchanges has not been as secure as major banks and other major financial institutions and they have been easy pickings for hackers whose  hacking into the largest Bitcoin exchange, Mt. Gox resulted in a loss of 850,000 Bitcoins and a declaration of bankruptcy by Mt. Gox.  Bitcoins have also been used in Ponzi schemes and other fraudulent investment schemes where scammers take advantage of the average consumer’s lack of knowledge about Bitcoins

TIPS

As an investment, Bitcoins are highly speculative and their value could easily plummet for many reasons including the general lack of security by major Bitcoin exchanges.  As for using them as currency, the lack of regulation makes them a risky way to pay for goods as well as the fact that you are seriously limited as to the places that will accept Bitcoins.  As with any investment, the rules for avoiding scams apply.  Be wary of guaranteed high returns and don’t invest in anything unless you have investigated both the investment and the person offering to sell you the investment.