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Investors beware | Cryptocurrency fraud among top threats to digital investors

The Kentucky Department of Financial Institutions said consumer complaints rose last year, 29% involved investments in cryptocurrency and digital assets.

FRANKFORT, Ky. — Even before the start of the COVID-19 pandemic, people were already looking at ways to make money in online investments.

The Kentucky Department of Financial Institutions (DFI) is now warning Kentuckians that digital scams are flourishing in 2022 and investments related to cryptocurrency and digital assets can pose significant risks to investors.

“Investors should be particularly careful about popular or trendy investment opportunities they learn about online that involve cryptocurrencies or digital assets, precious metals and promissory notes,” Marni Gibson, DFI’s director of securities, said.

Gibson said many of those online investments are private offerings and don't have the same investor protection requirements as those sold in public markets.

DFI said that nearly a quarter of all complaints the department received last year involved allegations of fraud. Consumer complaints went up by one-third, from 42 in 2020 to 56 in 2021.

“While complaints in the commonwealth involved a wide variety of products," Gibson said. "The top five categories were IRA/CD accounts; stocks and bonds; virtual currency; promissory notes; and investment contracts.”

RELATED: Biggest scams of 2021, and what to watch out for in 2022

29% of complaints last year involved cryptocurrencies and digital assets. Gibson said these two products pose significant risks to investors because they are highly volatile and largely unregulated.

A recent study by the North American Securities Administrators Association found that these are the tops threats to investors in 2022:

  • Investments tied to cryptocurrencies and digital assets.
  • Fraud offerings related to promissory notes.
  • Money scams offered through social media and internet investment offers.
  • Financial schemes connected to Self-Directed Individual Retirement Accounts.

Protecting investments, avoiding scams

Gibson said the best way to investors can protect themselves is first to make sure the investment and people offering it are properly registered with DFI or the Securities and Exchange Commission.

DFI offered these tips as well to avoid fraud and scams:

Beware of spoofed websites and fake social media accounts.

Look closely at the content, when the site or account was made, quality of engagement and domain names.

Beware of fake client reviews.

Scammers often use positive, yet bogus, testimonials supposedly written by satisfied customers.

If it sounds too good to be true, it probably is.

Promises of low- or no-risk investments with high returns are often a red flag for fraud. All investments carry some degree of risk.


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