Third US Agency Clamping Down on Crypto Scams

Federal and state regulators are going into hyperdrive to crack down on crypto investment scams, issuing cease and desist orders against exchanges and freezing assets of questionable crypto operators.

These actions are clustered in a few states like California and Texas, but ever more federal agencies are also joining suit.

The Texas Securities Commissioner issued a cease and desist order against BitConnect in January. A second order came from North Carolina right before the firm imploded.  

On Feb. 2, Texas Securities Commissioner Travis J. Iles sent another cease and desist order to DavorCoin that offered a very similar crypto lending program and even tried to take BitConnect’s market after it closed down.

Their pitch to investors was practically histrionic. “This does not change anything for us,” and that DavorCoin is now “the number one lending platform in the world!!”

DavorCoin had been promising investors they could make fortunes by investing in a lending program based on a new cryptocurrency known as davorcoin.

The firm claimed that an investor would earn $15,390 in the first month of the program and receive $107,217 after 120 days. Those returns are impossible to maintain and the very definition of a Ponzi scheme.

The cease and desist order specifically mentions claims by the respondent that davorcoin is “a form of digital public money” and that it “possesses value and can be traded like stocks in popular exchanges.”

The letter notes that DavorCoin is not telling investors how it will generate the extraordinary profits it promises. DavorCoin also is not disclosing the identity of its principals or its place of business.

Be cautious

The Texas Enforcement Division also found that DavorCoin was an unregistered firm selling unregistered securities through affiliates. Whether the firm’s founders will be tracked down and do jail time is not clear.

On the federal level, the Commodity Futures Trading Commission (CFTC) is the latest federal agency to warn investors about cryptocurrency scams.

In a press release dated Feb. 2, the CFTC warned  “be cautious” about such pitches that seem to come from the IRS, especially those claiming that the U.S. tax authority had in some way reviewed or endorsed the product.

The IRS, the CFTC noted, “does not approve or review investments for IRAs.”

The agency went on to write:

“Taxpayers tend to focus on retirement savings more at tax time in order to increase deductions or maximize savings.

“As a result, some businesses may attempt to lure customers into buying highly volatile cryptocurrencies using false claims or by painting virtual currencies as less risky because they can be used for retirement saving.”