Initial Coin Offering Lawsuits Pending as Fraud and Scams Prevail


Since the success of Bitcoin, cryptocurrencies have exploded in the past year. Almost every other week, a new promoter introduces an initial coin offering (ICO). Cryptocurrencies are much more fickle than stocks and bonds, and the industry evolves expeditiously. Despite the huge risk of investment, everyone who missed out on Bitcoin wants a chance to get in on the action. Many scammers have picked up on this eagerness and are taking advantage of trader greed.

In 2018 alone, investments in initial coin offerings could very well exceed one trillion dollars. While many ICOs are lawful, a vast majority of them have no real business plans or technology behind them; launching with nothing more than a “white paper” by individuals with no experience. The purpose of the “white paper” is supposedly to lay out the projected objective for the token, the technology behind it, the biographies of the promoters, and the sales goals the promoters have put in place for the cryptocurrency launch. It is then posted online to the public for a limited time as it simultaneously victimizes investors that are ready to take a chance.

Wrongful ICOs are taking advantage of their market novelty at an alarming rate to quietly evade federal and state systems that are specifically designed to protect investors from fraud. Scammers are quite aware that an ICO is nothing more than an offer of investment opportunity because it closely resembles an initial public offering of stock.

In late 2017, the Securities and Exchange Commission (SEC) issued a warning to consumers about initial coin offerings. An ICO might allege that it’s not a security at all, but “utility token” that provides investors with current or future access to a product or service. Under the SEC’s laws, however, a promoter’s sale of a security that has not been registered with the Securities and Exchange Commission and does not qualify for exemption from registration confers legal right on investors. Simply put, an investor who purchased a security from a scammer who ignored these registration requirements is entitled to a return of his/her investment.

Cryptocurrency trading is a high-risk investment that becomes increasingly speculative when there are unlawful players involved. There are some rules though that investors and traders can follow that may alleviate some of these risks. These rules are, but not limited to:

  • invest only what you can afford to lose;
  • research investment opportunities carefully;
  • trade cryptopcurrency CFDs instead

There are a plethora of unregulated online exchanges and brokerage firms that sell cryptocurrencies. Investors should be wary.

For more information, visit The Flint Law Firm monitors ICO marketplace and its compliance with with state and federal law.