One of the nation's top consumer watchdogs is trying to put a stop to alleged cryptocurrency scams that promised victims massive rewards for recruiting new members into the schemes.
The lawsuit by the Federal Trade Commission takes aim at what's known as “chain referral” schemes involving cryptocurrencies, a first for the consumer protection agency. It marks the FTC's latest effort to stem a wave of deceptive and misleading activity in the world of bitcoin, highlighting the issue's growing profile as more Americans turn to the virtual currency as an investment alternative.
The illicit activity affected some 30,000 consumers worldwide, according to FTC estimates based on claims made by the individuals named in the suit. In response to the FTC's complaint, the agency said, a federal court in Florida has halted the operations of four men who the FTC says promoted scams on YouTube, social media and conference calls.
Two of the alleged scams, known as Bitcoin Funding Team and My7Network, told consumers that participating in the plan could turn a $100 initial investment in bitcoin into $80,000 in monthly income. But the rewards rarely matched the rhetoric, according to the FTC's complaint. Participants could earn money as part of the scheme only if they persuaded others to join and make their own upfront payments, the agency said.
“Bitcoin Funding Team's structure, which created a continual chain of recruitment and recruitment-related payments, ensured that few participants would obtain the results depicted or projected by Defendants,” the complaint says.
The FTC's announcement comes days after Google said it was banning cryptocurrency-related ads on its platform. Calling cryptocurrency an example of an “unregulated or speculative financial product,” Scott Spencer, Google's director of sustainable ads, said in a blog post that the evolution of technology has led to the rise of novel scams that could harm consumers.
Facebook also banned cryptocurrency advertising on its website in January.
While cryptocurrency and its underlying technology, blockchain, could prove transformative for the economy, its complexity can create opportunities for criminals to prey on unsuspecting Americans, according to Joe Borg, director of the Alabama Securities Commission. The challenges can be particularly acute for older Americans.
“They're worried about health care rising, is Social Security going to be around,” Borg said. " 'I ain't got enough money for my retirement — my wages aren't going up.' Perfect storm for trying to encourage somebody that they're going to make a lot of money very quickly with all these bitcoin billionaires.”