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Texas Regulator Leads Sweeping U.S., Canadian Probe of Crypto Fraud

“Operation Cryptosweep” has opened 70 investigations and also found the digital currency craze has produced more than 30,000 crypto-related domain name registrations.

The Texas State Securities Board has taken command of a massive sweep of North American financial markets to root out fraudulent investment products tied to cryptocurrencies. 

The state regulator said Monday that it’s leading more than 40 U.S. state and Canadian regulators in a coordinated investigation of fraudulent cryptocurrency-related investment products. The North American Securities Administrators Association, or NASAA, began “Operation Cryptosweep” at the start of May. 

The task force has opened 70 investigations and has taken, or has pending, 35 enforcement actions, according to the statement. Underscoring the digital-currency craze is their finding of 30,000 crypto-related domain name registrations, most of which were created this year and in 2017.

“Although the task force’s work is far from complete, my suspicions have already been confirmed,” Joseph Rotunda, director of the enforcement division at the Texas State Securities Board and vice-chair of NASAA’s enforcement unit, said in the statement. “The market for cryptocurrency investments is saturated with widespread fraud, and our work is only revealing the tip of the iceberg,” 

The continued probe by the Texas State Securities Board and NASAA members will include scrutinizing the “sometimes murky business of initial coin offerings,” where companies raise capital by selling their own "tokens" to investors, according to the statement. 

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The Texas regulator said that many cryptocurrency scams use similar tactics, including promises of high returns, lack of material information on their investment strategies, and phony addresses. Some rely on the likeness of celebrities to attract and dupe investors. 

For example, Wind Wide Coin offered triple-digit returns in a digital currency program run by a “trading bot,” using testimonials about its profitability from the likenesses of Prince Charles and actress Jennifer Aniston, according to the statement. Bitcoin Trading & Cloud Mining, which offered investments in a cloud-based cryptocurrency mining program, used “phony videos to falsely depict the interior, exterior and workings of its computer server farms,” the Texas State Securities Board said.

The state regulator took action against Wind Wide Coin and Bitcoin Trading & Cloud Mining this month.

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