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The investment in cryptocurrency seemed almost too good to be true.
An Arkansas resident invested $500 with MyCapital, an online company that claims to be headquartered in the United Kingdom and operates the website mycapitaltradefx.com.
It promised high returns and little risk. Within weeks, the value of the Arkansan’s investment in bitcoin ballooned to a purported $13,500, according to an Aug. 4 cease-and-desist order from the Arkansas Securities Department. But it was a scam, and the investor lost his $500, the order said.
The investigation of MyCapital led to and a cease-and-desist order directed at eight similar websites for “engaging in illegal internet schemes to advertise, hype and sell fraudulent cryptocurrency and [foreign exchange] investments.”
The order marks the latest example of the rising number of frauds involving cryptocurrencies.
“It seems like every time we get some bad guys, shut one company down, two more pop up,” Securities Commissioner Eric Munson told Arkansas Business.
The Federal Trade Commission estimated that nearly 7,000 people lost more than $80 million between October and March in cryptocurrency-related scams.
“There are considerable portions of the cryptocurrency market that are unregulated today,” said Campbell McLaurin, ASD’s associate general counsel. “So regulators across the board are dealing with how to regulate cryptocurrency.”
During the 2021 legislative session, lawmakers added virtual currency to the definition of money transmission in the Uniform Money Services Act. That change means Arkansas companies or individuals who relay virtual currency transactions for clients have to be licensed with the ASD. That law went into effect July 28.
The cryptocurrency trade is still new. Created about a dozen years ago, it has blossomed into a $1.6 trillion market.
“With any emerging or booming market, fraudsters and scammers are looking for opportunities to defraud the public,” McLaurin said.
U.S. Securities & Exchange Commission Chair Gary Gensler said during a recent speech that he would like more cryptocurrency oversight. Gensler said he is willing to work with Congress, the president and regulators to close the gap that allows some cryptocurrency products to be unregulated, according to a transcript of the talk posted on the SEC’s website.
Munson agreed that the cryptocurrency market needs supervision and safeguards to protect investors. “It’s not for everyone,” he said. “It’s not a guaranteed investment.”
In Arkansas, licensed companies in the money services businesses, such as Western Union and PayPal, have seen the value and the number of virtual currency transactions during the last year skyrocket, said Karyn Tierney, an ASD attorney.
In the third quarter of 2020, there were 356,000 virtual currency transactions in Arkansas totaling $109 million. In the second quarter of 2021, the number of transactions jumped to 2.7 million with a value of $1.7 billion.
Investors Beware
The nine websites named in the cease-and-desist orders dangled the promise of high returns to recruit investors, which should be a red flag to consumers, McLaurin said.
The websites also used customer testimonials that aren’t supported by facts. The websites’ “schemes are to offer different investment plans at various prices with a promise of high returns,” the order said.
The ASD has asked the owners of the websites to take them down.
“But there’s no guarantee that these operators, these fraudsters, won’t develop similar websites under different names and publish those,” McLaurin said. “So that’s one reason why we want to get this message out, so that we can stop fraud on the front end before it ever happens.”