U.S. Regulator ICO Cryptocurrency Fraud

U.S. Regulator Cracks Down on Fraudulent Initial Coin Offerings

Initial Coin Offerings (ICOs), Cryptocurrency–Initial Coin Offerings, the oft maligned innovative form of raising capital in the space of cryptocurrency is making headlines again for all the wrong reasons. On Oct. 11 it was announced that North Dakota Securities Commissioner Karen Tyler had issued a cease and desist order against three firms which were reported to be offering unregistered and fraudulent securities under the guise of an initial coin offering.

The companies listed in the report involve Crystal Token, Advertiza Holdings (Pty) Ltd. and Life Cross Coin. In particular, Crystal Token (CYL) has made claims that the ERC-20 token will provide investors with earnings up to two percent per day, and other fraudulent statements that mirror the high profile bust of Bitconnect–which was making similar guarantees of ROI for purchasers of the coin. According to the report involving the condemnation of Crystal Token by Commissioner Tyler, CYL does not possess the authorization necessary to sell securities in the state of North Dakota.

Advertiza Holdings is being penalized for similar claims, stating that their currency Tizacoin (TIZA) offers holders the ability make a profit on the coin as the TIZA token appreciates over time–again leading to regulators to conclude that the cryptocurrency’s description falls more in line with that of a security, as opposed to being a  utility token. In addition to their bold claims for return on investment, Advertiza has also made false claims to be registered with the United States Securities and Exchange Commission (SEC), and lacks the qualifications necessary to sell securities in the state of North Dakota.

Life Cross Coin, according to an investigation into their website operated out of Germany, has been found to be heavily infected with ransomware, malware and forms of outright identity fraud. The coin in question LICO, short for Life Cross Coin, makes the claim that investments into the currency will be spent on charity, promising to deliver a “huge return on investment” for those looking to put money into the fraudulent ICO. Similar to the others listed above,LICO is not registered in North Dakota and draws the ire of the U.S. regulator for its claims of ROI and blatant deceit towards investors.

While Initial Coin Offerings have become a contentious point for the industry of cryptocurrency over the past year, it’s undeniable that lack of regulation in the space, combined with the massive amount of money raised throughout 2017 and 2018, has managed to attract frauds and other bad actors. Earlier in the year EWN reported on the epidemic levels of ICOs in 2018 being classified as scams. While newer reports have found a general decline in the ICO market, the amount of capital pouring into the space has continued to make for an attractive proposition to developers looking to capitalize on the current buzz around cryptocurrency and blockchain.

Perhaps in response to the blatant fraud being operated via ICOs and the severe lack of regulation, Commissioner Tyler weighed in with her opinion on the Wild West nature of the investment space,

“The continued exploitation of the cryptocurrency ecosystem by financial criminals is a significant threat to Main Street investors. In formulaic fashion, financial criminals are cashing in on the hype and excitement around blockchain, crypto assets, and ICOs – investors should be exceedingly cautious when considering a related investment.”

Despite the near-daily new stories reporting on the fraudulent activities of ICOs and crypto-scammers, the initial coin offering model has provided an avenue for innovation and fast capital to support the meteoric rise of blockchain and cryptocurrency–a feature that should not be underestimated.