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FSCL warns investors to beware of cryptocurrency scams

A recent complaint regarding Bitcoin has highlighted the growth of investment scams involving cryptocurrency.

Wednesday, January 13th 2021, 6:00AM 5 Comments

by Daniel Smith

A recent complaint resolved by Financial Services Complaints Limited (FSCL), involving Bitcoin, has highlighted how easily consumers can fall prey to cryptocurrency scams.

FSCL found that a consumer used an exchange platform to purchase cryptocurrency to invest in an investment scheme and this resulted in a total loss of $15,000.

The key signs that the “investment” was a scam included the fact that it offered guaranteed returns, a photo on the company’s website purporting to be the CEO appeared to be someone else, and that the consumer had already received returns on his initial investment.

Although the exchange platform had set out their concerns at the time, it was only when the consumer had lost all of his investments and asked the exchange platform to refund him $15,000 for the Bitcoin he had invested, that he understood the exchange platform was not liable for the loss.

FSCL CEO Susan Taylor told Good Returns that while the number of cryptocurrency scams that the dispute resolution scheme is seeing is not huge, “With interest rates being so low people are looking for alternative means for investing their money. I think it is likely that this could lead to more people trying to invest their money in cryptocurrency.”

In the case of this specific cryptocurrency scam, the FSCL found that the investment platform was not at fault as it made several attempts to warn the investor of the dangers involved.

Taylor said that in order to serve investors in the modern market, platforms will need to “be careful that they are properly describing the risks to investors. I think that they are also going to need to work closely with banks and government departments such as the FMA to keep everyone informed.”

But advisers will also need to make sure that they are picking up the slack: “Advisers ought to be aware of the dangers surrounding cryptocurrency as it is fast growing in popularity.”

As the popularity of cryptocurrencies continues to grow, so too does the likelihood of crypto-scams. Taylor said, “The fraudster is always looking for new ways to get money out of people, I hope this is not the case, but I dare say we are expecting to see more of these kinds of complaints.”

Tags: cryptocurrency FSCL scam

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Comments from our readers

On 13 January 2021 at 9:39 am Tash said:
Was this a scam or not? FSCL found the investment platform was not at fault?

Was the complaint against the exchange platform or the investment platform or are they the same thing?

If they are members of FSCL and not found liable how can this be a scam?

If they are not members of FSCL, what is FSCL doing investigating?

In full disclosure I don't know much about Crytpo currencies but they smell like Tulips to me.
On 13 January 2021 at 2:47 pm Murray Weatherston said:
@Tash
The article isn't completely clear but I think there were 2 legs to this transaction.
The first was to use the platform to purchse bitcoin. This apparently had no problem.
The second was where the complainant used the bitcoin to purchase an "Investment". Prima facie this was independent of the platform. This is where the scam occurred - investor handed over the bitcoin but didn;t get the investor.
On 13 January 2021 at 2:48 pm Murray Weatherston said:
@Tash
The article isn't completely clear but I think there were 2 legs to this transaction.
The first was to use the platform to purchse bitcoin. This apparently had no problem.
The second was where the complainant used the bitcoin to purchase an "Investment". Prima facie this was independent of the platform. This is where the scam occurred - investor handed over the bitcoin but didn;t get the investor.
On 13 January 2021 at 2:48 pm Murray Weatherston said:
Oops last word should be investment.
On 16 January 2021 at 11:25 am JPHale said:
@Murray that seems to be my interpretation as well.

Many seem to see bitcoin and the like as something new and fandangled, in reality, it is just like any other currency. It is a method of value exchange. The difference is it doesn't have a country of origin or a central bank in control of it.

The view of the investment market should treat it like foreign exchange, it has its own quirks and it is in a class of its own, but the fundamentals are similar to forex. aka it isn't an investment as such like funds management and shares.

Given its relative newness and lack of true real-world application like cash, it is trading on the FUD and bigger fool theory for increased value and returns. It doesn't have returns in and of itself, more the 'value' is created by being relative to the more familiar currencies we already know and understand.

The central bank bit that is similar to traditional forex is there is a money supply mechanism. This is by buying high-end computer equipment and 'mining'. Basically trading electricity in the real world for coins in crypto.

Mining is a term that refers to doing the transaction and verification work on the blockchain as people transact the cryptocurrency. This produces coins as a reward for the work and there is a limited supply of coins in most of the cryptocurrencies, which is part of the reason the exchange value has been increasing as people pile into it...

The creation of new coins for bitcoin comes from the mining process and there is a maximum number of coins that will be created. Which means at some point the mining process will be funded exclusively from the transaction fees charged per transaction.

Wikipedia has good coverage of the detail around what I have said here.




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