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TDCI: Crypto Scammers Use Technology for Harmful Digital Scams

Agency’s Warning Part of International “Operation Cryptosweep” Crackdown
Thursday, May 24, 2018 | 01:49pm

NASHVILLE – As part of the North American Securities Administrators Association’s (NASAA) crackdown on fraudulent cryptocurrency activities, the Tennessee Department of Commerce and Insurance’s (TDCI) Securities Division warns consumers about the financial dangers of crypto-schemes that prey on consumers.

Cryptocurrency is a digital-only, unregulated currency that has become increasingly popular among investors of all ages. Cryptocurrency is not backed by a bank or a government and has no physical presence in the real world. Instead, cryptocurrency exists solely online. As cryptocurrency has become more popular with the public, scammers are also capitalizing on cryptocurrency in order to commit fraud.

“While technology continues to advance and draw attention, scammers’ bad intentions remain the same,” said TDCI Commissioner Julie Mix McPeak. “We urge investors to practice caution when purchasing cryptocurrency or initial coin offerings. Scammers use the hype surrounding cryptocurrency as a way to inflate the value of their product and lure investors to buy.”

NASAA and TDCI’s Securities Division remind consumers to on the lookout for common crypto-schemes aimed at investors, including:  

PUMP-AND-DUMP

“Pump-and-dump” schemes have been a longtime form of fraud which involves scammers artificially inflating a stock’s price by attracting investors through misleading statements in order to sell the stock at a higher price. Cryptoscammers create their own “pump-and-dump” crypto-schemes by coordinating with groups of individuals to buy a thinly-traded cryptocurrency, promoting it on social media to drive up demand (and the price), and then selling it in a coordinated sale. After the sale, the price plummets and those unaware of the scheme are left with the devalued cryptocurrency.

FAKE DIGITAL WALLETS

These digital wallets are used to store, send, and receive cryptocurrencies. Scammers design a fake digital wallet to lure users into providing their private key or code that enables the wallet to open. Once a scammer receives the private key, he or she can steal all the cryptocurrency from the owner’s digital wallet.

MULTI-LEVEL MARKETING PLATFORMS:

Typically, companies lure investors in through the promise of high interest with low risk. These investors are then incentivized to recruit more members in exchange for commissions. The company promises commissions to promoters who recruit new investors. The promoters rely heavily on social media platforms (including Reddit, YouTube, Facebook, Twitter and Instagram) to hype the schemes and attract new investors, often using the promise of too-good-to-be-true investment returns. Eventually the company stops paying the returns and shuts down the program, keeping the invested cryptocurrency and abandoning the investors.

Questions? Tennesseans who have invested in cryptocurrency or have questions about the fraudulent tactics of crypto-criminals are invited to contact TDCI’s Securities Division by phone at 615-741-5900 or by email at securities.1@tn.gov.

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