Be wary of cryptocurrency “investment” scams

FSCL found that the exchange platform, which Isaac used to purchase cryptocurrency to invest in an investment scheme, had adequately warned Isaac about the risks of investing in the scheme. However, having already received returns, Isaac chose to proceed anyway, resulting in a total loss of $15000.

The key signs that the “investment” was a scam included the fact that it offered guaranteed returns, a photo on the company’s website purporting to be the CEO appeared to be someone else, and Isaac had already received returns on his initial investment, which is a hallmark feature of scams, to encourage investors to invest more money. Also, the investment scheme's incorporation certificate was from a country in the Caribbean, though it claimed to be a US company.

Although the exchange platform had set out their concerns at the time, it was only when Isaac had lost all of his investments and asked the exchange platform to refund him $15,000 for the bitcoin he had invested, that he understood the exchange platform was not liable for the loss.

Isaac believed that the exchange platform should not have authorised his transactions and argued that the platform had a responsibility to verify the merchants their customers pay bitcoin to.

The exchange platform said they have no responsibility over what their customers do with their bitcoin after they have purchased it and had made reasonable attempts to warn Isaac about the investment scheme.

“We considered the exchange platform’s obligations under the Financial Markets Conduct Act 2013 (FMCA) not to engage in misleading or deceptive conduct,” explains FSCL Chief Executive Officer Susan Taylor.

“The exchange platform had complied with their obligations to ensure their messaging about the risks and rewards of buying crypto assets were balanced, and they had pointed out the risk of investing bitcoin to Isaac as soon as he registered. We also considered the exchange platform made reasonable attempts to warn Isaac of the scam. We were satisfied that the exchange platform had not engaged in deceptive conduct.”

Because bitcoin is kept in online “wallets” which are anonymous, the exchange platform did not ‘’authorise’’ Isaac’s transactions.

“We were pleased to see the exchange platform update their policy for dealing with potential scams after the incident with Isaac,” says Ms Taylor.

The exchange platform now does not onboard new customers who mention managed investment schemes unless the schemes are regulated in a safe environment or officially vetted. They freeze customers’ accounts if they become aware of the customer potentially being involved in a scam and they also share more information with fraud teams at banks and other cryptocurrency exchange platforms about new investment scams.