Texas Shuts Down Fraudulent Crypto Traders

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High-profile cryptocurrencies attract fraudsters as well as investors.

Last week, Texas issued an emergency cease and desist order against a fraudulent cryptocurrency trading program. Both Texas-based C3 Data Services and UK-based Bitles Ltd are accused of offering fraudulent products and are no longer authorized to sell securities in the state.

According to the order, the companies used the following claims to lure investors:

  • They have proprietary algorithmic trading software that lets them trade across various crypto exchanges
  • They can pay daily returns of 0.3% to 6.0% on cryptocurrency and U.S. dollar investments
  • Their BTL crypto tokens will appreciate by as much as 10% to 60% per month

The Texas State Securities Board (TSSB) says these claims are all false.

Joe Rotunda, TSSB Enforcement Director, warned the recent sharp increase in cryptocurrency prices is fertile ground for scams. “Unfortunately, promoters of illegal crypto-get-rich-quick schemes are taking advantage of these changes to the market -- leveraging widespread interest to peddle fraudulent products," he said.

How to avoid crypto scams

The TSSB was the first state regulator to take action against fraudulent crypto companies back in 2017, and it continues to actively prosecute this type of activity. But you can take steps to protect yourself, too.

  • Use a legitimate exchange. As the market becomes more mainstream, cryptocurrency exchanges have to work harder to show they will be responsible with your money. Look for ones with strong security credentials and good reputations.
  • Research your investments. Any coin you buy should have a white paper that explains what it does and who is involved with the project. It's also worth checking what exchanges trade the coin. Some are too small to be on the main platforms, but you'll still find information about them. But if a coin isn't listed, like the Texas BTL token, it could be a scam.
  • Don't give anyone access to your wallet or exchange account. Fraudsters may call pretending to be customer support operatives, looking to get your account details. But support staff should never ask for your passwords or other access information. If in doubt, hang up and call the company directly.
  • Understand how you're being paid interest. There are several crypto exchanges that pay interest. The interest rates are often higher than you'll find with a high-yield savings account, but none of them pay 6.0% a day. Visit an exchange's website and make sure you understand how it pays better rates than traditional banks. For example, it may provide decentralized finance (DeFi) loans. A DeFi loan uses blockchain technology to make crypto loans that don't need a middleman. If that's the case, you need to be comfortable with the risks that entails. Your exchange might also let you "stake" your coins, which ties them up for a certain amount of time and pays interest.

If you are approached with an offer that seems to be fraudulent -- for example, it promises impossibly high returns on your investment -- contact the SEC or your state securities board. Hopefully, you'll be able to ensure nobody falls victim to the scheme.

When it comes to crypto investing, better safe than sorry

Scams aside, this is a relatively new and volatile industry. That means it has a lot of potential, but also a lot of risk. The value of the cryptocurrency you invest in may soar, but it may also plummet -- and in some cases, the coin may fail entirely. That's why we recommend you don't invest money you might need in the short term.

For example, The Ascent's parent company, The Motley Fool, has invested in Bitcoin because it believes the currency has long-term value. But it's not in it for short-term gain -- if the value of Bitcoin falls tomorrow, The Motley Fool is ready to ride out the dip.

If you're looking to buy Bitcoin or another currency for the first time, do your research and take it slow. Don't rush because you're scared of missing out. If your Bitcoin gets stolen, it will be difficult or even impossible to recover, so better to tread carefully.

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