SEC Charges Filed Against Scammers Show Why It Can Be So Hard To Spot Fraudsters

• SEC and OSC file charges against firms that set new standards in terms of appearing to be reputable
• Cryptobontix and Arbitrade are alleged to have conned investors out of at least $38m
• From looking at the techniques used, it is easy to see how they pulled it off

The US Securities and Exchange Commission (SEC) and Ontario Securities Commission (OSC) have filed charges against two crypto firms and key staff alleging fraudulent activity that has robbed unsuspecting investors of millions of dollars. The SEC’s statement says, “Although this case involves crypto assets, it bears the hallmarks of a classic pump and dump scheme”. For investors, the case highlights how credible scam operations can appear.

Crypto Pump-And-Dump

The firms in question are Canada-based Cryptobontix Inc and Bermuda-registered Arbitrade Ltd, with staff members Troy R. J. Hogg, James L. Goldberg, Stephen L. Braverman and Max W. Barber named as defendants in the case.

It is alleged that the dig (DIG) crypto they developed was built on foundations far weaker than was claimed. The SEC detailed that the firms “issued announcements falsely claiming that Arbitrade had acquired and received title to $10 billion in gold bullion,” which it claimed was backing each DIG token sold to investors.

The SEC estimates at least $36.8m of DIG were sold on the back of the “gold-backed” claims and false statements that independent accountancy firms had conducted an “audit” of the firm’s operations.

For investors, this wasn’t even a too-good-to-be-true scenario which is traditionally an identifiable red flag. Instead, the operation’s credibility extended to the firm having a dedicated Social Mediator Coordinator who, during the time when the SEC investors were being pumped-and-dumped, went onto news channels to allay fears.

“Hi guys, this is Philipp and I’ll be the Social Media Coordinator for Cryptobontix and Arbitrade at the moment. Thanks a lot for your patience over the last months — we’re aware that we need to improve our communication on all levels.”

Source: Medium

A quick scan of reputable news agencies points to the firms initially being able to convince even the big-name players that Cryptobontix and Arbitrade were legitimate operations. There’s no suggestion that reputable firms were part of the alleged scam, but one glossary entry still available online gives the below company profile of Cryptobontix. The description now appears to tell only a fraction of the story.

The lack of regulation in the crypto industry makes it very much a buyer-beware environment. Recent history proves there is potential for significant gains to be made, but the Cryptobontix / Arbitrade situation highlights how wrong things can go when investing in Altcoins. Those still keen to invest in cryptocurrencies would do well to follow the tried and trusted advice of ensuring they use a reputable broker and give considerable thought to their choice of coin.

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers, and you can share your experiences here. If you would like to know more about this particular topic or have been scammed by a fraudulent broker, you can also contact us at [email protected]

About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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