Cryptocurrency is an exciting new frontier, but new frontiers can leave you vulnerable to the unknown and susceptible to the biggest pitfalls in the crypto world: ICO scams.
In the past two years, almost $100 million has been stolen in ICO scams. One Chinese company, the Shenzhen Puyin Blockchain Group, stole over $60 million. Blockchain startups Cryptokami and NVO appear to have vanished with $8 million and $12 million respectively.
Of the 902 ICOs that came out in 2017, 46% have failed. Among those, 142 never got their funding; 276 were scams or faded out; and another 113 have either stopped talking about their projects online or lacked adopters to get the project off the ground.
With this in mind, Financial Industry Regulatory Authority (FINRA), a self-regulatory organization that enforces federal securities laws, lists the following tips for consumers and prospective ICO investors in its ongoing series with the Better Business Bureau on digital assets.
- Don’t say “yes” to cryptocurrency “stock” purchases from an aggressive cold caller.
- Be wary of lofty claims or guarantees about an investment, or pushy sales pitches that urge you to “act now.”
- Check out FINRA BrokerCheck for registration status and relevant information on firms or individuals who tout investment opportunities.
- Check the SEC’s EDGAR database to find out whether a company files with the SEC. If so, read the reports and verify the information. Also know that SEC registration still doesn’t mean the company is a good investment or that it’s the right investment for you.
- Be wary of stocks with huge spikes in price. This could signal potential manipulation or fraud.
- Do your due diligence and find out where a stock is trading, and pay attention to any cautions with the stock. Investigate OTC markets for pump and dumps. Some markets show a stop sign to indicate that a company can’t or won’t provide important information to regulators, exchanges or the OTC Markets, and also a skull and crossbones to warn that the security, company or officer of the company might be involved in a spam campaign.
You can check out the full FINRA article here.