From Blockchain to Social Media: How 2023 Became the Year of Investment Scams in the US
State securities regulators throughout North America are facing an unparalleled surge in technologically-driven investment fraud, with investigations into digital assets and social media scams reaching unprecedented levels in 2023, according to a newly released annual enforcement report.
The Enforcement Report for 2024, published by the North American Securities Administrators Association (NASAA), revealed that state regulators conducted 8,768 active investigations last year, with digital assets and internet-based fraud emerging as the primary threats to retail investors.
The report indicated that regulators initiated 343 new investigations into cryptocurrency-related schemes, excluding staking and NFTs, while an additional 144 cases were specifically focused on crypto staking operations. Furthermore, social media-driven investment fraud accounted for 205 new cases, marking a significant increase compared to levels seen in 2022.
Leslie Van Buskirk, NASAA President and Administrator of the Division of Securities at the Wisconsin Department of Financial Institutions, noted that fraudsters often take advantage of the excitement surrounding innovation and technology to exploit investors. She stated, “Combine that with the many ways in which technology and social media connect us, and bad actors find significant opportunities to try and deceive investors.”
The enforcement actions resulting from these investigations led to over $333 million in monetary penalties and restitution orders. Additionally, the courts handed down criminal sentences totaling 461 years of incarceration and 227 years of probation.
The report also highlighted the extensive oversight conducted on licensed securities professionals, with investigations into investment advisers, broker-dealers, agents, and IA representatives revealing a range of violations. As a result, 52 licenses were revoked, and 86 individuals and firms were barred from the industry.
The rise in fraudulent activities targeting older investors is another concerning trend highlighted in the report. State regulators received 3,481 complaints of alleged misconduct against senior citizens in 2023, leading to 131 enforcement actions involving nearly 3,000 elderly victims. Internet scams and digital assets were identified as the top two threats to senior investors, replacing traditional investment frauds.
Moreover, the report emphasized the growing importance of the NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, which has been adopted by 43 US states and territories. The act has been vital in addressing financial exploitation cases, as reports of suspected exploitation surged from 500 in 2017 to 4,291 in 2023, resulting in approximately 1,100 investigations.
Another alarming development in 2023 was the rise of fraudulent investment schemes claiming to be powered by artificial intelligence (AI). Scammers took advantage of the AI boom to create sophisticated deception schemes, often impersonating public figures to lend credibility to their operations. Regulators in multiple states took action against an operation called “Shark of Wall Street” and “Hedge4.ai,” which falsely claimed to use AI models for cryptocurrency price prediction and fraudulently implied endorsement from Elon Musk. Their scheme promised returns of up to 10,000 times the initial investment through its “TruthGPT Coin.”
The report also highlighted the increased cooperation between state and federal authorities, with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) referring 608 cases to state regulators, representing a 40% increase from the previous year.
Overall, the 2024 Enforcement Report underscores the dedication of NASAA members to combat investment scams and seek justice for victims through robust enforcement efforts and collaboration with regulatory bodies across the US.