The Washington State Department of Financial Institutions (DFI), Securities Division has received several complaints involving companies claiming to be an institution of higher education, such as a “Business School,” “Academy,” or “Wealth Institute,” providing a curriculum predominantly centered around investing in cryptocurrency. Investors are typically introduced to the investment opportunity through social media such as an advertisement on Facebook. The company may have a website specifically for the institution and a separate site where the trading occurs. On the company website, there may be a “Letter from the Professor” or “Letter from the Dean” somewhere on the main page. Additional red flags have been compiled below based on these complaints.
WhatsApp and Telegram
The alleged fraud typically starts with an investor being placed into a WhatsApp or Telegram group, often with an arbitrary name that includes buzz words like “Wealth Club,” “Elite,” and “AI.” The groups are operated by purported associates of the company with titles including professor, advisor, and assistant.
The “Professor” and founder of the company provides investment courses through the WhatsApp Group (or similar platform) such as “daily trading signals” that result in exorbitant rates of return. The professors usually have an “assistant” that facilitates the communication with the investors. There are others posing as investors within the group, but several reports have indicated that they may be bots or involved in the scheme themselves. The groups may also be separated into smaller units based on the amount an investor is willing to invest, sometimes referred to as a “VIP Club” or “VIP Investment Group.” Some investors have reported that they were given a small amount of crypto deposited into their account for free to “test” the platform before investing their own funds.
Loans and Lines of Credit
These companies may offer high dollar loans or lines of credit that are advertised as a way for investors to reach the VIP Club, meet the capital requirements for a new offering (such as an Initial DEX Offering (IDO), NFT, Coin, etc.) or to further their investment and make more profit. The lender may be the company itself or a “merchant” of the company. The loan process may be conducted informally through WhatsApp or Telegram. Some investors have been asked to provide personal information like their credit score and license, and to sign a loan document. Others have reported that the “assistant” in the group will borrow the funds, often in cryptocurrency, on their behalf when they decline the offer. The company then claims to have deposited the borrowed funds in the investor’s account on the platform, and may even provide a screenshot from the account showing the purported deposit into a cryptocurrency wallet. However, a review of the associated blockchain shows that the transaction does not exist in the particular wallet.
Investors are expected to repay the purported loan but are assured that the profits made from the platform can be used to repay it. When the investor tries to repay their loan in this manner, the company informs them that their account will remain frozen until they are able to repay the loan using outside funds. When they are unable to do so, investors have received threatening messages from the company and/or collection letters claiming legal action will be taken against them.
DFI has yet to receive a report where an investor was able to withdraw their funds by paying the loan back.
Wire Transfers
Although most transactions involve the transfer of cryptocurrency, investors have also been asked to send wire transfers to pay for their investment. The bank account information provided often shows that the name of the account holder is completely different than the company name. Investors may also be instructed by the company not to tell bank staff that the transfer is for a cryptocurrency investment.
Website and Mobile Apps
A common theme involved in these schemes can be found on the platform’s website and mobile app. Although the mobile apps may look sophisticated, and the website may include documentation from well-known agencies like the IRS and the SEC, it is often a ploy to legitimize the operations. The following is a list of red flags that often appear on these fraudulent platforms:
Website registration information for the fraudulent platform often do not align with the claims made by the company. For example, the website is created well after the date the company claims to have been founded. In addition, it appears that these companies purchase old URLs, created years prior, to make it seem as if they have been operating for a long time.
These companies may post various documents on their website from regulatory or government agencies as a way to appear legitimate. For example:
MSB Certifications from FinCEN, Form D filings with the SEC, and business licenses do not require a significant amount of documentation or identification. The information contained in these types of filings often is not verified. These filings should not be interpreted as an endorsement of a business or investment.
IRS letters containing an Employer Identification Number: The legal name associated with the EIN may be different from the name the company is going by.
The company may falsely claim to be a Registered Investment Advisor (RIA) or claim they are exempt from registration. Although exempt entities may be listed on FINRA’s BrokerCheck or the Investment Advisor Public Disclosure search with the SEC, exempt entities are subject to less regulatory oversight.
Companies may provide an NFA certification but are not an NFA Member and therefore are not subject to NFA oversight.
The dates of these documents usually do not align with the date the company claims to have been founded.
Phase Out
As investors begin reporting the alleged fraudulent companies and platforms, the company may announce that they are going through a “merger” without providing additional details. The company may prompt investors to go through the withdrawal process as soon as possible and imply adverse consequence, like additional regulatory review, if the investor fails to act. The website may also disappear entirely without notice, locking investor accounts. The individuals behind these sites often create a new website under a different name and/or change the name or title of the Professor and Assistant but use the same tactics to continue their operations.
Additional Resources
Virtual Currency, Cryptocurrency, and Digital Assets Information for Consumers