Security & Fraud

Crypto Scam Victims Unlikely To Get Their Money Back

The Securities and Exchange Commission (SEC) and various state regulators have been investigating more than 90 cryptocurrency cases in which investors lost money.

According to a report in The Wall Street Journal, the SEC is currently investigating BitConnect, a crypto investment platform that investors poured money into during last year’s bitcoin — craze only to lose it all. People close to the matter told the newspaper that investors aren’t likely to get any money back, despite the SEC’s investigation.

BitConnect is just one of the 90 cases the SEC and state regulators have launched during the past 24 months. The investigations come amid a two-year period in which cryptocurrency prices swung from all-time highs to steep lows.

One of the allures of cryptocurrencies — anonymity — is the reason the SEC and state regulators are expected to have little success returning any lost money. The WSJ mentioned comments SEC Chairman Jay Clayton made last year, in which he warned the SEC may not be effective in going after scammers and recovering funds invested in digital tokens. Part of the reason, Clayton said at the time, is that some of the proceeds end up outside the U.S.

Based on an analysis by the newspaper, of the 90 cryptocurrency cases the SEC has pursued, regulators have only tracked down $36 million for investors. The investigations are aimed at stopping illegal initial coin offerings (ICOs), Ponzi schemes and pump-and-dump scams, but very few were filed during the height of the crypto craze, when many companies were launching ICOs and the price of bitcoin was skyrocketing. More recently, with the price plummeting and investors getting more skeptical, the SEC has been filing more cases. The WSJ noted that in November the SEC filed five cases compared to four in 2017.

In an interview with the newspaper, Clayton said he thinks warnings from the SEC about the risks associated with cryptocurrencies and enforcement actions may have reduced some of the excesses in the marketplace.

“The SEC helped to get rid of the veneer of legitimacy,” Clayton said.

Meanwhile, Robert Cohen, the SEC’s head of crypto investigations, told the paper that the cases the SEC has filed send a strong message to all areas of the digital token market: “We’ve been able to make investors whole again in the cases we filed, but it’s not just about how much money is recovered.”


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