It seems as if everywhere you look, there is some news article on cryptocurrency. Virtual currencies, such as Bitcoin, have recently become popular and were initially created to serve as a type of money or payment system. Virtual currencies may be purchased as an investment by those seeking appreciation of the coin’s value as well as traded on online exchanges in exchange for conventional currencies, including the U.S. dollar. They may also be used to purchase goods or services, usually online.

The investing public is quite eager to get onboard this latest craze as the value of Bitcoin continues to skyrocket, seemingly without an end in sight. However, the elusive nature of digital currencies poses a unique array of problems to both regulators and potential investors. These problems are apparent from the rise in the number of enforcement actions involving cryptocurrency brought by the Securities and Exchange Commission (“SEC”). Since January 2000, the SEC has announced over two dozen securities fraud cases tied to cryptocurrency—either digital assets or initial coin offerings.  Over the past few years, the volume of SEC enforcement actions involving similar schemes has exploded. Compare where we are now to 2016 when the SEC filed  just a single “Digital Assets/Initial Coin Offerings” enforcement action .

Cryptocurrencies were born in 2009 when Bitcoin announced the first of its kind. Since that time, digital currencies have grown to over 4,800 according to Cryptocurrencies  are valuable as they live in a decentralized, anonymous block-chain network. Their scarcity is accomplished within the network, where a supply cap on the digital “coins” exists, and where collective members of the system “mine” each unique coin.   For example, in the case of  Bitcoin,  there is  a cap of 21 million coins. As recently reported, approximately 18.5 million Bitcoins have already been mined. The way in which cryptocurrencies such as Bitcoin get their value is by having a limited supply,  the overall market demand, the cost to mine one  bitcoin, and competition from competing cryptocurrencies.

While it’s value can sometimes be volatile,  Bitcoin’s price has been rising, and many individual investors have been buying it. As of April 25, 2021, one bitcoin was priced at  $49,866.30 –up about 58% year to date. But there are some unique risks in investing in Bitcoin, or other similar cryptocurrencies. Because cryptocurrency is a relatively new form of currency which is reliant on technology and not readily understood by the investing public, prospective investors may be easy targets for fraudulent schemes.

The SEC has pronounced that Bitcoin is a security. Yet, Bitcoin is quite different from a traditional stock or bond since it does not represent shares in a corporation. Because of its digital nature and how it derives its value, it is not impacted by government-imposed monetary policy or rates of inflation, and its format makes it almost impossible for regulators to access. Fraudsters may use virtual currencies to perpetrate their scams because such transactions supposedly offer greater anonymity and thus less regulatory oversight than transactions in conventional currencies. Therefore, cryptocurrencies such as  Bitcoin give fraudsters an easy platform to fool investors.

In the first quarter of 2021,  the SEC announced an enforcement action against three individuals for defrauding hundreds of retail investors out of more than $11 million in connection with two unregistered digital asset securities offerings related to Bitcoin. According to the SEC’s complaint, during the period between December 2017 through May 2018, Kristijan Krstic, founder of Start Options and Bitcoiin2Gen, and John DeMarr, the companies’ promoter, fraudulently induced investors to buy digital asset securities. According to the SEC, Krstic and DeMarr falsely claimed  that Start Options was “the largest Bitcoin exchange in euro volume and liquidity” and “consistently rated the best and most secure Bitcoin exchange by independent news media.”  Also, in January 2018, Krstic and DeMarr allegedly promoted Bitcoiin2Gen’s unregistered initial coin offering (ICO) of digital asset securities which were named B2G tokens. According to the SEC, certain related individuals drafted fraudulent promotional materials knowing that they would  be disseminated to the investing public. The fraudulent  promotional materials allegedly contained numerous false statements, including the statement that B2G tokens would be deliverable on the Ethereum blockchain, that the invested funds would be used to develop a coin that was “mineable,” and that the tokens would be tradeable on a proprietary digital asset trading platform at the platform’s “launch” in early April 2018.  However, the SEC alleges that these claims about the B2G tokens were false,  that Bitcoiin2Gen was a sham, and  that Krstic and DeMarr allegedly misappropriated millions of dollars of investors’ funds for their own benefit.

Significantly, in announcing this enforcement action,  the SEC noted that “The conduct alleged in this action was a blatant attempt to victimize those interested in digital asset technology…  .” This recent example of cryptocurrency fraud is representative of a much larger problem. The  cryptocurrency  investment frenzy that is taking hold in the United States (and elsewhere) puts the investing public at great risk. So much so that the SEC has recently authored a new investor alert titled “Ponzi Schemes Using Virtual Currencies” which identifies several red flags for potential investors. 

As with many types of investment fraud, Ponzi scheme organizers will often use the latest innovation or technology, as a means to entice potential investors and promise high returns. Generally, potential investors are less skeptical of an investment opportunity when presented with  something novel, new or “cutting-edge.” While it may be that cryptocurrencies present an exciting investment opportunity for some, prospective investors should be mindful of the potential investment scams that are associated with their sale. 

If you or someone you know has been the victim of cryptocurrency fraud contact a cryptocurrency investment fraud lawyer.  A seasoned investment fraud attorney can help you understand your rights and evaluate your potential claims. 


If you or a loved one have suffered investment losses as a result of a cryptocurrency investment,  or any other type of investment fraud or broker negligence, contact the offices of Investment Fraud lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment scam. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers represent individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States. Contact us by filling out our online contact form, or calling 844-635-1609.