Common cryptocurrency scams investors should know

One of the easiest ways to run a scam is to create a new cryptocurrency, particularly when Bitcoin is on a rally. Investors, worried about missing out on the crypto boom, quickly jump in.

For example, two California men rolled out a new coin, Bitqyck, in 2016, when rival Bitcoin was starting its run to $19,497. Bitqyck was extremely affordable: It sold for 2 cents. Its

promoters, Samuel Mendez and Bruce Bise, said Bitqyck would jump to $3 and stay there. As of Nov. 11, 2018, Bitqyck had fallen to $0.000572. Bise and Mendez settled a case with the

Securities and Exchange Commission last August, agreeing to return their ill-gotten gains, with interest, and pay civil penalties of more than $890,000 and $850,000, respectively. More

recent frauds have centered on selling interests in Bitcoin mining schemes and paying extra to investors who bring in new players. Last December, for example, three men were arrested for

their roles in BitClub Network, a Ponzi scheme that allegedly took $722 million from investors. Such schemes take money from new investors to pay off earlier investors, until the entire

pyramid collapses. Other schemes have focused on generating power for Bitcoin mining. Creating new Bitcoins globally takes tremendous amounts of electricity — currently about the amount that

Switzerland consumes in a year, the BBC has reported. One scheme, LeadInvest, falsely claimed it had a “green” Bitcoin mining operation in Iceland that was endorsed by Supreme Court Justice

Ruth Bader Ginsberg and three former U.S. solicitors general. The scam was closed down by Texas regulators in March 2018. Other schemes offer outlandish returns from investments in Bitcoin

mining. Ultimate Assets, based in Arlington, Massachusetts, promised to pay out a $5,000 return for a $500 investment, meaning those who invested $5,000 would get $50,000. The scam was

closed down in September 2018 by Texas regulators. “Crypto fraud shows little signs of slowing down,” says Rotunda, of the Texas State Securities Board. In 2019, 20 to 25 percent of the

securities fraud cases in the state “had some crypto aspect.” The North American Securities Administrators Association, a Washington, D.C.-based nonprofit, declared cryptocurrency fraud one

of the top consumer threats for 2020. Promoters of these schemes get their money right away, and victims often lose everything. “They’re promising a very safe way to diversify from the stock

market, and they put it into a market that’s largely unregulated,” Rotunda says. But, he says, ultimately, the driving force behind crypto cons is fear of missing out on red-hot gains that

never emerge.