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Texas State Securities Board Investigation Uncovers 32 Illegal Cryptocurrency Schemes

Reading Time: 3 minutes by on April 22, 2018 Altcoins, Bitcoin, Commentary, News, Regulation
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The Texas State Securities Board (TSSB) published a report on April 10 based on afour-week investigation concerning cryptocurrency fraud in which 32 illegal schemes were discovered.

The probe was conducted owing to the upswing in the cryptocurrency investment opportunities flogged to Texans. According to the report published by the TSSB, cryptocurrency frauds have been identified as  “widespread.”

Unregistered Crypto Businesses Cut Off

The Texas Securities enforcement agency’s perusal commenced on December 18, 2017, and investigated 32 cryptocurrency-related businesses, 19 of which claimed to use bitcoin in one way or another. The TSSB’s findings revealed a number of illegal activities connected with cryptocurrency schemes. The list comprises some major points that should be noted:

  •       Out of these 32 ventures not a single company was licensed to sell securities in the state,
  •       11 crypto businesses only had an online presence but no physical address,
  •       Five of the listed companies promised unrealistic returns – a clear indication of fraud,
  •       Six of them were running Multi-level marketing (MLM) schemes.

According to the TSSB report, many of these fraud companies smartly word digital assets. These fraud schemes use coins and tokens to refer to digital assets, however, in compliance with the US law tokens are considered as securities.

Surprisingly, as per TSSB’s report “not a single promoter out of 32 promoters of cryptocurrencies which were investigated was registered to sell securities in Texas.”

In January 2018, the Texas Securities Commissioner released a cease and desist order against the Ponzi scheme program Bitconnect. Bitconnect was noted as high-yield investment program that would swindle investors money by offering unrealistic profit of 600 percent annually.

Investors Are Drawn to Crypto Space, Amidst Risks

The Bitconnect case and other similar examples were published in the TSSB report. Around the same time, when they cut off Bitconnect; it also served the cease and desist order to AriseBank, which claimed itself as the world’s primary decentralized cryptocurrency bank.

The Texan authority had problems with the utilization of the word ‘Bank’, in AriseBank, which sends the wrong message to people. Also, the allegation that it was registered to execute banking activities in the state.

In another case, the enforcement division of the TSSB also issued a Cease and Desist order against DavorCoin, that allegedly swindled Texas residents by offering a crypto lending program that would earn them a monthly interest 48 percent.

Similarly, the TSSB’s investigation also came across USI-Tech Limited, a Dubai-based company that was selling “unregistered BTC Packages.” As per the fraud program, the company employed “unique algorithms” to minimize risk, where investors pocket up to 150 percent profit. As per TSSB, the USI-Tech Limited where not authorized to sell bitcoin packages to Texas residents. Companies that want to offer securities in the Texas state are compelled to register with the states Securities Board.

The Texas State Securities Board also reminded that crypto space is still in it latent stages and there is a much risk involved in investing in the tokens of startups. None of the companies investigated by TSSB clearly stated or else advertised the risks in investing into cryptocurrencies.

However, there are many inherent risks of cryptocurrencies such as lack of regulatory framework nationally and internationally, hackers penetrating security systems, unpredictability concerning cryptocurrency prices. Even though considering all risks, cryptocurrencies are one of the profitable investments in the present day. The crypto space is also growing at an unprecedented pace where new investors in the form of individuals and companies, are entering the space creating a conducive enrionment for fraud according to the TSSB:

“There is no question the evolution of cryptocurrencies provides legitimate businesses with new and exciting means of raising capital and promoting dynamic new technologies. At the same time, however, the Enforcement Division’s investigations revealed that the revolution in digital money is creating an environment ripe with illegal and fraudulent securities offerings.”

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