Fraudulent Claims of SEC Approval in Marketing Cryptocurrency Trading

As the awareness and popularity of cryptocurrencies increase, so do the instances of fraud and dishonest behavior associated with their trade, which is evidenced by the recent Securities and Exchange Commission (SEC) Investor Alert on the subject.

In this alert, the SEC warns specifically about fraudsters making false claims about SEC or Commodity Futures Trading Commission (CFTC) actions and endorsements related to digital assets, including but not limited to the following:

  • Having advanced knowledge of future agency actions to approve new financial products that derive their value from digital assets
  • Using the SEC or CFTC seal on promotional materials related to digital assets
  • Advertising that agency officials are working with certain digital industry participants to bring their financial products to the market

Read the full SEC alert here.

Fraudulent Claims of SEC Endorsements Are Happening Now

In a recent case that lends credence to cryptocurrency fraud concerns, the SEC has suspended trading in the Nevada-based American Retail Group, Inc. (OTC: ARGB), also known as Simex, Inc., for making false claims that it had partnered with an SEC-qualified custodian to conduct cryptocurrency transactions that would be “under SEC Regulations,” and that the company was conducting a token offering that was “officially registered in accordance [with] SEC requirements.”

Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit highlights the obvious nature of the fraud when he points out that, “the SEC does not endorse or qualify custodians for cryptocurrency, and investors should use vigilance when considering an investment in an initial coin offering.”

In accordance with the federal securities laws, the SEC has exercised its authority to suspend trading for 10 days and prohibited broker-dealers from soliciting investors to buy or sell until reporting requirements are met.

Caution Required in Still Loosely Regulated Cryptocurrency Trading

Trading in virtual currencies is still in its infancy, and proper regulatory guidance is still in development.

The rather scattered nature of current regulations makes it challenging to trade in cryptocurrencies with confidence that no regulations are being violated.

What can be said is that, when marketing any services related to cryptocurrencies, it is critical that guidance around claims of SEC certification or approval be followed.

It’s well known throughout the industry that the SEC does not provide a rubber stamp of approval with regards to virtual currency, but it is very important that marketing materials do not leave investors with the impression that your firm’s cryptocurrency trading activities have received any sort of official SEC endorsement.

Such claims of SEC licensing or official certification are viewed as fraudulent since they would provide investors with a false sense of security that might improperly influence their decisions on whether to invest in the very risky arena of cryptocurrency, which might amount to a violation of fiduciary duty.

Awareness of SEC Marketing Standards: We Can Help

Core Compliance and Legal Services, Inc., would like to help you or your firm stay on the right side of these marketing regulations. Awareness of standards and requirements is the advisable first step in avoiding any enforcement actions.

Our experienced consultants are available to provide assistance with ensuring that your marketing materials contain required disclosures and are in line with regulatory requirements— click here to contact us today.

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