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Sunday, July 31, 2022 8:18:22 AM
“In addition, we have seen several bankruptcies and collapses relating to digital assets. Though the facts are still emerging, it appears the eventual implosion of Terra and the loss of over $50 billion in the values of Terra LUNA and TerraUSD over a three-day period had cascading, interconnected consequences for many market participants. By way of example, in June 2022, a court in the British Virgin Islands ordered Three Arrows Capital (‘3AC’), a Singapore-based hedge fund that once managed as much as $10 billion in assets, into liquidation. Days later, 3AC filed for bankruptcy under Chapter 15 of the U.S. bankruptcy code, which allows a foreign debtor to deal with their U.S. assets. On July 5, Voyager Digital Holdings, Inc. (‘Voyager’), a cryptocurrency brokerage that allowed customers to buy, sell, trade, and store cryptocurrency on a single platform, filed for Chapter 11 bankruptcy protection. At the time of bankruptcy, Voyager had over 3.5 million active users of its mobile application and over $5.9 billion of cryptocurrency assets held. A few days later, another trading platform, Celsius Network (‘Celsius’) declared bankruptcy. Celsius had approximately 1.7 million registered users and approximately 300,000 active users with account balances of more than $100, and approximately $6 billion in assets.”
The crypto news from FINRA’s Walsh was no better. Her written testimony included details about a growing scam called “Pig Butchering.” It works like this according to Walsh:
“In these scams, victims are lured into making investments, often in cryptocurrency or in microcap investments, through the guise of romance. These scams are typically initiated on social media, dating apps, or through private messaging apps where the scammer forms a friendship or romance with the intended target and convinces the target to invest — for instance, on a crypto platform affiliated in some way with the scammer or in small cap stocks being manipulated in a pump and dump scheme. Ultimately, the individual is victimized when the crypto wallet is stolen by the scammer, or the investments fall in value due to the manipulation.”
Walsh also explained the multiple, unique threats that crypto investors face, writing:
“Investors face significant risks when engaging with crypto assets, most of which exist with respect to activities conducted outside of a registered broker-dealer. For example, if the private keys to assets or wallets are lost, mishandled or stolen, an investor could experience an irreversible loss of their digital assets. Vulnerabilities in smart contract code, blockchain network or related protocol may also enable a hacker to empty out investors’ funds. In addition, the decentralized nature of some blockchain networks and applications implies uncertain investor protections to the extent that there may be no entity to hold accountable when there is a breakdown in service. Further, if a transfer is made in error, it may not be possible to unwind the transaction and there may be no other avenue for recourse…
“There has been a significant increase in bad actors exploiting the hype around cryptocurrencies and digital assets by creating schemes that capitalize on new or popular investment products. According to the Better Business Bureau’s 2021 Scam Tracker Risk Report, cryptocurrency fraud jumped from the seventh riskiest scam in 2020 to second riskiest in 2021. Similarly, reports to the FTC’s Consumer Sentinel Network show that fraud with cryptocurrency as the payment method increased fivefold between 2020 and 2021, from $130M to $680M, and most of the $680M lost was tied to crypto-related investment scams.
“Some of those crypto-related frauds include scammers designing fake digital platforms to syphon the contents of investors’ crypto wallets. FINRA and other regulators have also observed bad actors running crypto-related Ponzi or pump and dump schemes. Generally, a majority of these schemes are conducted by individuals outside of FINRA’s jurisdiction.”
Recent BTCUSD News
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