Attorney General Becerra Warns Investors and Consumers to Beware of Digital Asset Scams

SACRAMENTO – California Attorney General Xavier Becerra today issued a consumer alert warning about scams involving digital assets, such as cryptocurrencies. Recently, unscrupulous actors have impersonated well-known politicians, celebrities, and business executives on social media and YouTube channels in “giveaway” scams that falsely promised, for example, to double any digital assets sent to a specific digital asset wallet. These schemes are only the most recent example of attempts by scam artists to capitalize on novel technologies in order to rob Californians of their hard-earned savings.

“Fraudsters often rely on the excitement and mystery of innovation to persuade consumers and investors to offer up their cash in hopes of earning far more in return,” said Attorney General Becerra. “Their schemes take many forms, but these swindlers all have the same goal: to separate people from their money. Prior to purchasing or investing, you should always research the company and its claims. And remember, claims that are too good to be true usually are.”

Anyone considering investing in or purchasing digital assets should be aware of the following scams:

Fraudulent Coin Offerings: An Initial Coin Offering (ICO) is the cryptocurrency version of an Initial Public Offering (IPO). Be cautious of invitations to “invest early” in “the next Bitcoin” through an ICO. Scam artists have convinced people to invest in ICOs for cryptocurrencies that don’t work or don’t even exist. Some ICOs have been exposed as “pump and dump” schemes where promoters rev up publicity for an “exciting” new ICO using big name endorsements and social media, but then secretly cash out their stake before the buzz fades and the tokens plummet in value. 

Fake Exchanges and Wallets: As cryptocurrencies have grown more popular, nefarious actors have stolen millions by setting up fake exchanges and virtual wallets, and then disappearing with investors’ money. These scams have tricked users by offering low trading costs or promising quick and easy rewards. Do your research and be sure to use a reputable service that has a proven track record of redeeming customer withdrawals. Unlike traditional banks and exchanges, cryptocurrency deposits are not FDIC insured and currently have fewer regulatory safeguards.

Ponzi Schemes: A Ponzi scheme is a fraudulent system that simply transfers money from recent investors to earlier investors, creating the illusion of a profitable enterprise. These schemes eventually collapse when new investments dry up. Digital assets have become a popular destination for Ponzi schemers in recent years. Typical hallmarks of Ponzi schemes include promises of high returns with little or no risk; promises of guaranteed income; secret formulas or strategies that will purportedly “beat” the market; reluctance to share written information about investment performance; and difficulties cashing out payments. 

Pyramid Schemes: Pyramid schemes are similar to Ponzi schemes and have proliferated under the guise of falsely profitable digital asset projects. These scams typically offer incentives to recruit new investors, creating a “pyramid” structure where a small percentage of investors at the very top of the recruiting chain enjoy most of the profits. Like Ponzi schemes, pyramid schemes typically collapse when new investors stop buying into the scheme, wiping out investors in the lower levels of the pyramid. Be on the lookout for supposed “investment opportunities” that depend on you to recruit or sell to other people in order to earn money.

Mining Scams: “Mining” is a way to create new bitcoins and similar cryptocurrencies without buying them, but it has become a very resource-intensive activity. Investors can purchase or rent computers that mine coins for a fixed price, but, as the difficulty of mining increases, the same investment returns increasingly smaller amounts of coins. Some mining promotions make bold claims regarding sky-high returns without being honest about the diminishing returns of mining. Others have been exposed as mere Ponzi schemes with no legitimate mining activity. Be extra careful and diligent in your research before you invest money in any cryptocurrency mining project.

Digital Assets as an Alternative Form of Payment: Be wary of accepting digital assets as payment in transactions for real estate and other real world assets. For now, it is always safer to insist on cash, even when the purchaser claims you will get more value by accepting cryptocurrency.

These are just some examples of the tactics scam artists have used to take advantage of the buzz around cryptocurrency and other digital assets. To avoid falling victim to digital asset scams, Attorney General Becerra urges investors to be especially wary of these red flags:

• Unrealistic profit claims, such as promises that a cryptocurrency will outperform the stock market or generate guaranteed fixed income;

• Vague and anonymous offerings, such as cryptocurrencies that lack a “white paper,” a real-world use, or an identifiable management team;

• Special deals or giveaways that appear to come from trusted public officials, executives, celebrities, or friends and family (speak with them before clicking on any links);

• Programs that reward recruitment of other investors;

• Offerings or deals that pressure you to invest right away;

• Exchanges and wallets that do not have a proven track record of securing customer deposits and honoring withdrawals; and

• Any claim or deal that just seems too good to be true.

Digital assets are new technologies that currently have fewer regulatory safeguards and higher volatility than many other investment products. The California Department of Justice is committed to safeguarding consumers and investors in this evolving market.

If you believe you have been the victim or target of a scam related to digital assets, please immediately file a complaint at http://‪www.oag.ca.gov/report.