Crypto scams, Ponzi schemes and social media frauds remain the top threats to retail investors — both alone and in combination — according to a new report from the North American Securities Administrators Association (NASAA).
The umbrella group of U.S. state and Canadian provincial regulators issued their latest enforcement report, which details the regulators’ enforcement efforts over the past year, and highlights some of the trends they’re seeing in financial crime.
According to the report, U.S. state regulators have seen a “sharp rise” in enforcement investigations that involve digital assets.
“Of the new investigations opened in 2023, 343 cases involved digital assets other than staking and non-fungible tokens (NFTs), 144 involved staking, and 205 cases involved social media fraud. The number of these cases reported in 2023 increased significantly from 2022,” it said.
Cases involving crypto and other digital assets accounted for 6% of the regulators’ investigations but 13% of the enforcement actions — the largest share for any specific product category and the fastest growing.
The number of investigations involving staking schemes jumped by 131% year over year, and the number of enforcement actions involving digital asset staking was up 54% from 2022, NASAA said.
“Fraudsters often exploit the buzz that comes with innovation and technology to take advantage of investors. Combine that with the many ways in which technology and social media link us together and bad actors find significant opportunities to try and rip off investors,” said Leslie Van Buskirk, president of NASAA and administrator, division of securities, with the Wisconsin Department of Financial Institutions, in a release.
Combined, the state securities regulators conducted 8,768 investigations and initiated 1,186 enforcement actions in 2023, NASAA reported. These actions resulted in over US$333 million in monetary sanctions (fines and restitution orders), approximately 461 years of prison time, and 227 years of probation and deferred adjudication, it said.
Of these, over 1,300 investigations and 131 enforcement actions involved older investors, NASAA said. These older investors were also heavily targeted by schemes involving social media and crypto.
While older investors are often seen as the least likely to adopt new technologies, the regulators reported that in 2023, “the top issues in investigations involving senior victims were internet and social media scams, and digital assets.”
The report noted that regulators also foresee an increased threat from affinity frauds, alongside the growth in crypto-related schemes.
“On the horizon, securities regulators expect to see more impersonation, pyramid and romance scams involving digital assets and cryptocurrency, and the increased use of crypto ATMs to perpetuate these frauds,” the report said. “Regulators also expect many of these frauds to be led by and involve foreign actors.”