California Fraud Case Highlights Need for Regulatory Crackdown on Cryptocurrencies

The California Department of Financial Protection and Innovation (DFPI) announced last month that it had issued cease and desist orders against 11 entities for violating California securities laws. Some of the highlights include allegations that they offered substandard securities and material misrepresentations and omissions to investors.

These breaches should remind us that while crypto is a unique and exciting industry for the wider public, it remains an area full of bad actors and potential for fraud. To date, government regulation of cryptocurrencies has been minimal at best, with a clear lack of action. Whether you’re a full-time professional investor, or a general fan who wants to get involved, you need to be absolutely sure of what you’re going into before getting involved in any cryptocurrency opportunity.

California has established a cryptocurrency-specific business registration process for those wishing to do business in the state.The proposed framework is Governor Gavin Newsom vetoed Because the resources required to create and implement such a framework are prohibitive for countries. Although such a compliance infrastructure has yet to be adopted, it points to regulators’ concerns about the crypto industry.

There appears to be a pattern that emerging industries, especially those that have received international attention like cryptocurrencies, are particularly vulnerable to fraud. One can only go back to marijuana legalization to find the last time California had to deal with a fraudulent scheme of this magnitude.

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In the name of consumer protection, it seems inevitable that California, known as a regulatory and compliance pioneer, will create some form of cryptocurrency-specific compliance infrastructure. If history is any indication, once California releases its framework, other states will follow.

Federal and state representatives have been trying to draft legislation to establish financial standards for cryptocurrencies, but have so far had no luck. At the federal level, Senators Cory Booker, John Thune, Debbie Stabenow, and John Boozman co-sponsored a bill authorizing the Commodity Futures Trading Commission (CFTC) as the cryptocurrency regulator, while Senators Kirsten Gillibrand and Cynthia Lummis co-sponsored a bill. bill. A bill was launched to establish clearer guidelines for digital assets and virtual currencies.Lawmakers even contacted tech luminaries like Mark Zuckerberg Weighing in on cryptocurrency fraud.

Source: Chain Analysis

None of these or other similar cryptocurrency-focused bills are expected to pass in 2022, but this level of bipartisanship is unprecedented in recent years. Cooperation should only reflect the huge demand for regulatory frameworks. In other words, Democrats and Republicans talking to each other about anything should block the media, but the fact that they co-sponsored multiple bills should tell us that there is a huge demand for guidance.

How should the crypto space be invested in if the government is not going to have control over crypto? There are some general points that should be considered if they are offered a crypto investment opportunity.

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Please do your due diligence when reviewing any opportunity! Don’t take anyone’s word for it without some level of substantive support. If encryption is not an area of ​​expertise, please contact a professional with qualified experience.make sure to use Cryptocurrency Monitoring and Blockchain Analysis Toolsif possible, as part of the review process.

A common tactic for fraudsters is to impose undue pressure or artificial timetables on potential shutdowns. Slow down the process and use all the time necessary to make an investment decision.

If that sounds too good to be true, it probably is. While the cliché may be overstated, it does make a valid point. There are already plans to pay initial and continuing dividends for any new investors brought in, as well as additional dividends from any investors brought in by these new investors. If this sounds like a pyramid or a multi-level marketing plan, that’s because it is. Terms like “risk-free investing” are also thrown around. Ultimately, be careful if no one knows where the opportunity is coming from.

While crypto can be an interesting and exciting topic with many legitimate opportunities, there are also bad players who will capitalize on the excitement of a lack of government oversight and overzealous or undereducated investors.

Zach Gordon is a Certified Public Accountant (CPA) and VP of Crypto Accounting at Propeller Industries, serving as part of the CFO and advisor to the crypto and Web3 client portfolio. Appointed as a CPA 40 Under 40, he is a member of the NYSSCPA Digital Assets Committee and has been working with cryptocurrency clients in various capacities since 2016.

This article is for general informational purposes only and is not intended and should not be considered legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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