According to the Texas State Securities Board, a large number of promoters and advisors for cryptocurrency investments on the territory of Texas could be frauds.
The board published a report on 14 pages in which it says that none out of 32 advisors for cryptocurrency investments investigated during one month was licensed by the government to sell securities, which violates the Texas Securities Act. Likewise, the report also says that 21 of the investigated advisors did not provide a home address or the address of their companies, which could mean their intentions are fraudulent and their goal is to trick the clients into giving them money.
In the case of DavorCoin, the Texas Securities Commissioner issued an Emergency Cease and Desist Order, accusing it of illegal and fraudulent offers for investments in cryptocurrencies for Texas residents. The clients were promised a return on their investment of 48% if they purchased and lent DavorCoin’s own cryptocurrency known as davorcoin. This project was not transparent when it comes to the identity of the management team and the address of the company. DavorCoin claimed it was founded by anonymous bankers and investors whose addresses could not been revealed due to regulatory and tax risks. After issuing the order to DavorCoin to cease its operations, its market capitalization went down from almost 68 million dollars to almost zero. Many investors lost their money with little they could do against the company that seems to exist only in cyberspace.
The report further talks about seven other promoters that were offering new cryptocurrencies. Five of them offered exorbitant earnings of up to 40% on a monthly basis, while avoiding to talk about the investment risks at the same time. Six promoters offered commissions for recruiting new investors, denoting a referral system and these are known to be potentially fraudulent.
The investigation concluded with seven legal actions against some investors. They were accused of fraud and operating without license. Travis J. Iles, the Texas Securities Commissioner said: “The investigations show significant risks in investing in securities that supposedly use cryptocurrencies to enrich investors. There is a lot of hype surrounding cryptocurrencies, but the companies offering investments are often not disclosing all the information investors need to make an informed decision. Investors risk giving their hard-earned money to anonymous promoters hiding behind websites who have no intention of making good on their promises.”
The report assures the advisors had not warned the investors of the risk of theft and cybernetic attacks, which, according to the authorities, are considered to be common when it comes to the cryptocurrency exchanges.
The Texas state Securities Board says many companies are not aggressive and seem benevolent when offering their services. This is because they are trying to hide their corrupted nature before the clients. For example, one of the advisors put a photo of a photo model on his website taken from a photography website and assured it was one of the executives in the company. That way, he created a completely false professional profile. This is what the report says: “Anyone can set up a savvy, professional online presence that falsely portrays a team of experts skilled in managing capital. Charming portraits and lengthy profiles may convey a sense of comfort and security, but virtually anyone from anywhere may be lurking behind the flashy graphics.”
Texas is on the regulatory forefront when it comes to the cryptocurrency ecosystem. In January, Bitconnect was ordered to cease operations and was accused of fraud and not complying with the regulations established by the US Securities and Exchange Commission (SEC).
The board concluded the report with the following statement: “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.”