16 Apr Cryptocurrency scams: Preventing industry brand damage
Portland lawyer Jeffrey Babener has written an excellent view of how cryptocurrency scams are impacting the multilevel marketing brand, as if the MLM industry didn’t have enough challenges of its own.
We’ve highlighted a few of Babener’s key perspectives and how US regulators may view the impact of cryptocurrency scams and what steps they may be planning.
Why ban cryptocurrency ads?
Earlier this year, Facebook banned cryptocurrency ads. Google and Twitter soon followed leaving a big hole in the marketing channels for the cryptocurrency industry.
Babener believes the MLM industry needs to protect its “brand” in the same way as these social media giants:
“Just as Google and Facebook realized that cryptocurrency scams could be a “brand killer,” the direct selling industry may have awakened to the prospect that the cryptocurrency scheme species is mutating into various MLM offerings that threaten the “brand” of direct selling itself, poisoning pools of potential customers and sales people. Time for direct selling to join the war on these “brand killers?” Absolutely.”
The problem for the legitimate cryptocurrency industry is the spread of schemes selling coin investments to industry based on hype and not information:
“All of the MLM schemes have flashed the “New Age” technical terms, “cryptocurrency,” “digital currency,” “cloud mining” as if these were “magic” terms that bestowed some sort of legitimacy on what was, in reality, a scam, trying to defy the proverbial Texas wisdom, “you can put lipstick on a pig, but it’s still a pig.””
Common MLM cryptocurrency scams
Babener identifies four of the most common cryptocurrency scams:
- Out-and-out pyramid schemes
- disguised pyramids
- Ponzi/pyramid cloud mining investment schemes
- Ponzi/pyramid ICO or cryptocurrency purchase scheme.
The problem he says for regulators is these investments look like, sound like and function like unregistered securities in most cases. Many cryptocurrency scams represent Ponzi and other fraudulent financial schemes.
It’s not the technology, it’s the users creating problems
He says blockchain technology is an exciting advancement that provides many benefits as well as disruptions. Babener cites International Monetary Fund Managing Director, Christine Lagarde on the promise and perils of cryptocurrency:
“The technology behind these assets—including blockchain—is an exciting advancement that could help revolutionize fields beyond finance. It could, for example, power financial inclusion by providing new, low-cost payment methods to those who lack bank accounts and in the process empower millions in low-income countries.
The possible benefits have even led some central banks to consider the idea of issuing central bank digital currencies. Before we get there, however, we should take a step back and understand the peril that comes along with the promise.”
Babener says the typical MLM cryptocurrency scam is based in foreign countries such as Hong Kong, Dubai and several problematic European countries. Regulators in Texas, New Jersey and South Carolina as well as the SEC have moved recently to shut down several high-profile cryptocurrency scams.
He highlighted the FTC’s recent action against three MLM cryptocurrency scams including Bitcoin Funding, My7Network and Jetcoin which “guaranteed” investors unrealistic and unverified returns.
Protecting the cryptocurrency “brand”
Babener says the MLM industry needs to protect its brand from cryptocurrency scams through a unified voice and strategy.
In the cryptocurrency world, it’s so new there is no unified voice and now, no regulations to guide the industry.
One thing is clear, if the cryptocurrency industry doesn’t regulate itself, the government will regulate the industry with uncertain results. “It is time for the industry to step up,” he adds.
You can read Babener’s full column here.
Visuals: Jeff Babener photo courtesy of his law firm website