Fraud cases in California highlight the need for regulatory action for cryptocurrencies

The California Department of Financial Protection and Innovation (DFPIfor its acronym in English) announced last month that it had issued desist and desist orders to 11 entities for violating California securities laws.. Some of the highlights included allegations that they offered unrated securities, as well as material misrepresentations and omissions to investors.

These infractions should remind us that, Although cryptocurrency is a unique and exciting industry for the general public, it is still an area that is rife with potential bad players and fraud.s. To date, government regulation of cryptocurrencies has been minimal at best, with a clear lack of action. Whether you are a full-time professional investor or a casual hobbyist looking to get involved, you have to be absolutely sure what you are getting into before getting involved in any cryptocurrency-related opportunity.

California has played with the establishment of a cryptocurrency-specific business registration process for those seeking to do business in the state. The proposed framework was vetoed by Governor Gavin Newsom, as the resources required to establish and enforce such a framework would be prohibitively expensive for the state. Although this type of compliance infrastructure has not yet been employed, it points to concerns that regulatory authorities have regarding the cryptocurrency industry.

There seems to be a pattern that new industries, especially ones that garner as much international attention as cryptocurrency, are especially susceptible to fraud.. You only have to go back to the legalization of cannabis to find the last time California had to deal with fraudulent schemes on this scale.

It seems inevitable that California, known for being first in regulation and compliance, will create some sort of cryptocurrency-specific regulatory infrastructure in the name of consumer protection.. If history is any indication, once California publishes its framework, other states will follow.

Federal and state representatives have attempted to write laws to set financial standards for cryptocurrency with little luck to date.. At the federal level, Senators Cory Booker, John Thune, Debbie Stabenow, and John Boozman cosponsored a bill to empower the Commodity Futures Trading Commission (CFTC) to act as the regulator for cryptocurrencies, while the Senators Kirsten Gillibrand and Cynthia Lummis co-sponsored a bill to establish clearer guidance on digital assets and virtual currencies. Lawmakers have even contacted tech personalities like Mark Zuckerberg to take action on cryptocurrency fraud.

Fuente: Chainalysis

None of these or similar crypto-focused bills are expected to pass in 2022, but this level of bipartisan cooperation is unprecedented in recent times. Collaboration should reflect the sheer magnitude of the need for a regulatory framework. In other words, Democrats and Republicans talking to each other about anything should stop the presses, but the fact that they are co-sponsoring multiple bills should tell us that there is a monumental need for guidance.

How should investing in the cryptocurrency space be approached if the government is not going to put controls on it? There are some general points that one should consider if presented with an investment opportunity in the field of cryptocurrencies..

When reviewing any opportunity, do your due diligence! Don’t take anyone’s word for it without some level of substantive support. If crypto is not an area of ​​expertise for you, go to professionals who do have qualified experience.. Be sure to use cryptocurrency monitoring tools and blockchain analysisif possible, as part of the investigative process.

A common strategy of fraudsters is to put undue pressure or artificial deadlines on a potential closing.. It slows down the process and uses all the time needed to make an investment decision.

If it seems too good to be true, it probably is.. Despite the exaggeration of the cliché, it is a valid point. There have been instances of schemes offering initial and continuing dividend payments for any new investors brought in and additional dividend payments for any investors those new investors bring in. If this sounds like a pyramid or multi-level marketing scheme, that’s because it is. Terms such as “risk-free investment” are also used. As a last resort, if nobody knows where the opportunity comes from, be careful.

Although cryptocurrency can be a fun and electrifying subject with many legitimate opportunities, there are bad players who will take advantage of the lack of government oversight and the excitement of overzealous or uneducated investors.

Zach Gordon is a Certified Public Accountant (CPA) and Vice President of Crypto Accounting for Propeller Industries, serving as Fractional CFO and Advisor to a portfolio of cryptocurrency and Web3 clients. He has been named a CPA of the Forty Under 40s, sits on the NYSSCPA Digital Assets Committee, and has been working with crypto clients in a variety of capacities since 2016.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.

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