Cryptocurrencies such as Bitcoin and Ethereum have exploded in popularity in the last decade. As with any other medium of exchange, however, cryptocurrencies are subject to fraud and manipulation. When that happens, investors are ripped off and the public loses confidence in the integrity of cryptocurrency. Whistleblowers who know about fraud can be rewarded for stepping forward and exposing scams. But maximizing your reward and protecting your rights under whistleblower laws means having the experience of a firm like Newman & Shapiro on your side. If you have information concerning cryptocurrency fraud, we can help.
What Is Cryptocurrency?
Cryptocurrency is like any other currency in that it can be used to purchase goods and services. Unlike traditional currency, however, crypto is only digital and lacks the backing authority of a central bank. Cryptocurrency uses cryptography (codes) to provide secure online transactions. Without a central bank like the Federal Reserve regulating its distribution and value, crypto instead uses a technology called blockchain to manage and record transactions.
Blockchains are essentially electronic recordings of transactions between parties. Each block in the chain records timestamped data that points and links to a previous block. No one can change a block without affecting a previous one, and the data is stored across numerous computers. This technology allows users to verify the authenticity of each transaction and provides a measure of security to cryptocurrency.
What Is An Initial Coin Offering (ICO)?
Initial coin offerings or ICOs (similar in nature to initial public offerings, or IPOs) are used to raise funds for a new cryptocurrency project. But there is a critical difference between an ICO and an IPO. In an IPO, a company must disclose certain information about its finances and legitimacy. The same is not necessarily true for ICOs.
The SEC has warned that fraudsters can use blockchain technologies “to perpetrate fraudulent investment schemes.” Some of the specific scams used in relation to cryptocurrencies and ICOs include the following:
- Non-existent tokens or ICOs. Some tokens and ICOs are completely made up. The cryptocurrency might not exist, or the people behind the offering company might have fake biographies. In 2017, for example, the SEC brought charges against the promoter of a fraudulent cryptocurrency, REcoin, that didn’t actually exist.
- Pump and dump. A traditional pump and dump scheme involves stock owners making false statements to create hype that artificially drives up the value of stocks. The very same thing can happen with respect to cryptocurrency ICOs.
- Ponzi schemes. Another traditional scam that has been adapted to the crypto world is the Ponzi scheme. With the Ponzi scheme, a constant stream of new investors is necessary to pay artificial returns to older investors.
There are numerous other types of cryptocurrency frauds that rely on investors’ lack of knowledge or sophistication with cryptocurrencies. As with investment devices more generally, any company that uses high-pressure tactics or that promises unrealistic, quick, or guaranteed returns should raise red flags.
What To Do If You Have Information Concerning A Cryptocurrency Fraud
If you have information about cryptocurrency fraud, you need a dedicated and aggressive whistleblower attorney. Turn to Newman & Shapiro. We will schedule a confidential consultation with you to discuss your case and explain your options. Contact us today to get started.