The California Department of Financial Protection and Innovation (DFPI) announced this week that it has issued desist-and-refrain orders against three entities for violations of California securities laws, all of which claimed to use artificial intelligence and/or expert traders “to generate too-good-to-be-true returns for investors.”
“The DFPI is on the forefront of combating investment scams involving crypto assets and will continue to leverage the tools at our disposal to do so,” DFPI Commissioner Clothilde V. Hewlett said in a news release Wednesday. “This includes enforcement actions, social media and our crypto Scam Tracker. Enforcement and investor education go hand-in-hand.”
The three entities, according to DFPI, used multilevel marketing schemes that rewarded investors who recruited new participants.
“Often, these recruiters were paid for their efforts, while the investors they brought in lost their investment,” the DFPI release said. “Each of these entities allegedly offered and sold unqualified securities and made material misrepresentations and omissions to investors related to crypto asset investments.”
The entities named in the statement are CloudFi, CoinMarketBull, Vortic United and Jan Gregory Cerato, who was involved with all three entities.
“The entities in today’s actions are classic examples of high-yield investment programs (HYIPs). HYIPs are investment frauds that typically promise high returns with low risk, promise overly consistent returns, provide little details about the people running the HYIP, use vague language to describe how the HYIP makes money, offer referral bonuses, facilitate deposits and withdrawals with crypto assets, and use social media to gain attention and attract investors,” DFPI said.
This complements the DFPI’s efforts to more effectively reach the audience of investors targeted by these types of scams. HYIPs, including the ones named in Thursday’s order, often use social media, especially YouTube, as a primary method of recruiting new investors.
“DFPI is flipping the script, directing these alerts towards the same groups of current and prospective investors that the scams themselves target on social media,” the release says.
Hewlett also announced the addition of more crypto scams to the Scam Tracker. The department launched the Scam Tracker earlier this year to help Californians spot and avoid crypto scams.
Concerned investors can file a complaint directly with the DFPI if a company is suspected of using unlawful, unfair, deceptive or abusive practices. Victims of a scam or fraud should let DFPI know immediately by filing a complaint with DFPI online (dfpi.ca.gov/file-a-complaint) or calling toll-free at (866) 275-2677.
