From Crypto to Social Media: How 2023 Became the Year of Investment Scams in the US

Wednesday, 23/10/2024 | 06:45 GMT by Damian Chmiel

State securities regulators conducted nearly 9,000 investigations, with digital assets and social media fraud emerging as top threats.

Enforcement actions recovered $333 million for investors and resulted in 461 years of combined prison sentences.

State securities regulators across North America are grappling with an unprecedented wave of technology-driven investment fraud. According to an annual enforcement report released Tuesday, investigations into digital assets and social media scams reached record levels in 2023.

Crypto and Social Media Scams Drive Record US Securities Probes

The North American Securities Administrators Association's (NASAA) 2024 Enforcement Report revealed that state regulators conducted 8,768 active investigations last year. Digital assets and internet-based fraud emerged as the dominant threats to retail investors.

Regulators initiated 343 new investigations into cryptocurrency-related schemes excluding staking and NFTs. Another 144 cases specifically targeted crypto staking operations. Social media-driven investment fraud accounted for 205 new cases, marking a significant increase from 2022 levels.

Leslie Van Buskirk, NASAA President and Administrator

“Fraudsters often exploit the buzz that comes with innovation and technology to take advantage of investors,” said Leslie Van Buskirk, NASAA President and Administrator, Division of Securities, Wisconsin Department of Financial Institutions. “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.”

The enforcement actions resulted in more than $333 million in monetary penalties and restitution orders. Courts handed down criminal sentences totaling 461 years of incarceration and 227 years of probation.

The report detailed extensive oversight of licensed securities professionals:

Category	New Investigations	Enforcement Actions
Investment Advisers	404	113
Broker-Dealers	204	103
Agents	184	42
IA Representatives	190	142

Regulators also took decisive action against misconduct, revoking 52 licenses and barring 86 individuals and firms from the industry.

The UK FCA also recently took more decisive action against unregulated crypto firms. During a period of 10 months, the regulator issued over 1,000 warnings and removed 48 potentially dangerous apps from popular online stores.

Rising Trend in Senior Financial Exploitation

The targeting of older investors has reached alarming levels—state regulators received 3,481 complaints of alleged misconduct against senior citizens in 2023. These investigations led to 131 enforcement actions involving nearly 3,000 elderly victims.

The most concerning development is the shift from traditional investment frauds to technology-based schemes. Internet scams and digital assets emerge as the top two threats to senior investors.

The NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation, now adopted by 43 US states and territories, has proven increasingly vital. Reports of suspected exploitation have grown dramatically from 500 in 2017 to 4,291 in 2023, leading to approximately 1,100 investigations.

We have just released our 2024 Enforcement Report, which reveals a sharp rise in investigations related to technology and digital assets, alongside a significant increase in public tips and investor complaints. Details: https://t.co/TvMec4sZNU pic.twitter.com/mvlGHOmTrn
— NASAA (@NASAA) October 22, 2024

Artificial Intelligence Emerges as New Frontier for Investment Fraud

A troubling new trend in 2023 has been the rise of fraudulent investment schemes supposedly powered by artificial intelligence. Scammers are capitalizing on the AI boom to create sophisticated deception schemes, often impersonating public figures to lend credibility to their operations.

“This report reflects NASAA members’ long-standing commitment to stopping investment scams and getting justice for victims,” said NASAA Enforcement Section Committee Co-Chair Amanda Senn, Alabama Securities Director.

In a notable case, regulators in five states took action against an operation called “Shark of Wall Street” and “Hedge4.ai” that falsely claimed to use AI models for cryptocurrency price prediction and fraudulently implied endorsement from Elon Musk.

The scheme promised returns of up to 10,000 times the initial investment through its “TruthGPT Coin.”

The report also highlighted increased cooperation between state and federal authorities. The SEC and FINRA referred 608 cases to state regulators—a 40% jump from the previous year.