By Thomas Goldsmith
Cross a social media influencer with someone who touts a great new cyber-based way to grow your money and you might just have run into a “finfluencer.”
Financial regulators increasingly use the newish term to designate unscrupulous people — some celebrities, some simply uncredentialed know-it-alls — who pop up online with too-good-to-be-true investment schemes. Often these involve terms such as Bitcoin and NFTs, or nonfungible tokens. Actor Matt Damon has hawked Bitcoin, although, with a recent market downturn in the value of the currency, his ad has disappeared from online. Or remember First Lady Melania Trump and the digital image of herself she marketed as an NFT?
A key term that might tell older investors something about the dizzying nature of all this is DeFi, or “decentralized finance,” structures where people or companies can make transactions directly with each other via software. That’s as opposed to investing via TradFi, or traditional financial institutions such as banks and brokerages.
In North Carolina, John Maron’s job includes letting people know about the potential pitfalls of these kinds of offerings. He’s the director of a program that protects and educates investors with the NC Department of the Secretary of State securities division. Maron was one of two panelists for a recent online information session presented by the Institute for the Fiduciary Standard, an independent national think tank.
“Bad guys are selling the sizzle,” Maron said during the session. “And everybody wants to believe the sizzle.”
Potential investors should be aware that providing this sort of advice is a regulated industry in large part because of the potential for loss.
“We just encourage people to think with their heads, not their hearts,” Maron said. “Let’s think about it. If you’re willing to drive around town looking for pennies off on a gallon of gas, why don’t you use the same kind of methods when you’re evaluating your investment, portfolio or investment options?”
Kardashian cash-out causes consequences
Finfluencers haven’t had to present a credentialed background in investment to lure potential buyers into the world of cryptocurrency, and sometimes that has consequences.
Professional celebrity Kim Kardashian recently agreed to a settlement with the federal Securities and Exchange Commission under which she would pay $1.26 million in fines, repayment and interest. The settlement arose from her failure to tell investors she was making a quarter of a million dollars to hype vehicles called EMAX tokens.
According to the SEC, the company EthereumMax had been offering the tokens on their website, to which Kardashian directed consumers via a link in one of her posts. She did not admit fault in the settlement.
“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion,” Gurbir S. Grewal, director of the agency’s enforcement division, said in a statement. “Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”
Given the complex, tech-heavy nature of cryptocurrency, older North Carolinians can be particularly susceptible to this kind of crime as well as more traditional types of financial scams. According to FBI statistics more than 2,500 North Carolinians older than 60 lost more than $40 million to elder fraud in 2021.
An advisory on finfluencers from the NC Secretary of State’s office can be found here.
Nationally, scam artists gleaned more than $133 million from nearly 800 victims just from a cryptocurrency twist on the senior romance scam. Having enticed new senior love interests, crooks would introduce ill-informed victims to the world of Bitcoin, NFTs and tokens.
Nationally, 2021 cryptocurrency losses in senior scams were $241 million.
It’s not just folks like Gwyneth Paltrow, Tom Brady, Reese Witherspoon and Larry David who are pitching cryptocurrencies. (Endorsements by these and other stars have brought some criticism, but not Kardashian-like settlements.)
A locally connected scam?
Closer to home, a Texas cease-and-desist order listed a man named Charles Koehler, at a Cary address, among the principals with a company called Treasure Growth LLC, also known as Treasure Growth Investments, a cryptocurrency cloud mining company.
According to the financial information site bankrate.com, cryptocurrency cloud mining refers to a means to obtain tokens in digital currency in return for providing the high levels of computing power required to solve the complicated problems required in order to verify transactions.
There’s no listing for a Charles Koehler in public telephone, voter registration or property listings in Cary, nor does he show up in the recommended BrokerCheck national database of registered financial advisers.
According to the Texas Securities Board order, Treasure Growth reached out to potential investors through online sites and public advertisements.
“It is allegedly claiming these cryptocurrency cloud mining investments generate lucrative returns over very short terms—one plan purportedly promises returns of 10% over a term of 30 days and another plan purportedly promises returns of 80% over a term of 120 days,” a press release said.
The company also offered attention-getting premiums, according to the order, such as a bonus of a Ford F-150 pickup to a person who put $1 million into the investment.
The company is ordered to stop selling any security, and Koehler and two other principals are ordered to stop acting as agents of a securities firm unless they are registered with regulating agencies.
“It is further ordered (that) Respondents immediately cease and desist from engaging in any fraud in connection with the offer for sale of any security in Texas,” the document says. “It is further ordered that respondents immediately cease and desist from offering securities in Texas through an offer containing a statement that is materially misleading or otherwise likely to deceive the public.”
What is this all about?
Problems with investing in these sorts of companies reflect several trends of recent years. One is that older people are more involved all the time online and on social media, often to their benefit in staying socially connected. Another is the complexity of the investments being offered in Bitcoin and other vehicles which retirees may not have encountered previously when they were planning for post-employment income.
A third problem is the unceasing efforts of scam artists to draw on any sort of changed conditions – including those in financial realms – to develop new means of separating people from their hard-earned money.
However improbable some of the schemes may seem, they apparently attract investors who are told, in one recent offering, they could receive “passive income” from sharing profits in an online casino company based in a former Soviet state 6,000 miles away.
What red flags can a consumer look for in an online offering?
- A social media site is the only way to reach it
- No phone
- No email
- No physical address
- High returns with little effort, but big investment.
- A push to act quickly
Joe Rotunda, the director of the enforcement division of the Texas State Securities Board, echoed Maron’s warnings for older people.
“Senior citizens really are one of the targets for the individuals who are promoting bad investment advice,” Rotunda said.
In 2005, only a small percentage of the 65-plus population used social media; now it’s roughly half, he said. For a scammer, there’s little cost to targeting this broad group at once.
“That means that individuals who are illegally promoting investment advice moved from newspapers with a very limited circulation to social media,” Rotunda said.
Offers to dive straight into an investment, especially a complicated new one involving cryptocurrency, should cause immediate suspicion, Maron said.
“Security sales are heavily regulated,” he said. “The law requires disclosures, transparency, and slowdown. If it’s a good investment today, it’ll be a good investment tomorrow after you’ve had an opportunity to check in.”
Correction: This story initially misspelled Joe Rotunda’s name as Joe Rotundo.