Technology-Driven Scams: Growing Concern for State Regulators

State securities regulators are grappling with a significant uptick in technology-driven scams involving digital assets and social media platforms. The North American Securities Administrators Association (NASAA) recently revealed alarming trends in its latest enforcement survey, shedding light on the cases member agencies have investigated and battled against in 2022.

Frontline Battle Against Bad Actors

Speaking at an online event delving into the report, NASAA President Claire McHenry emphasized the crucial role of state securities regulators in safeguarding investors. Describing themselves as the “cops on the beat,” regulators are committed to thwarting schemes linked to precious metals, commodities, digital assets, and online fraud. The report underscores the substantial dedication of resources channeled into combating these nefarious activities.

Shift in Priorities

Digital Assets Under the Radar

State regulators dived into a staggering 357 investigations into digital asset-related complaints during the year, resulting in 125 enforcement actions. This surge marked digital assets as the most targeted product class for investigations and enforcement measures.

Rising Complexity in Investigations

As fraudulent schemes tied to digital assets gained momentum, NASAA noted a heightened level of complexity in investigations. Joe Rotunda, Director of the Enforcement Division at the Texas State Securities Board, highlighted the evolving landscape of evidence collection, emphasizing the intricate nature of tech-heavy and data-intensive probes.

“We’re accustomed to dealing with voluminous evidence,” Rotunda remarked during a webcast, “but the nuances are becoming increasingly intricate.”

The upsurge in technology-driven scams underscores the evolving dynamics of financial fraud, prompting state regulators to navigate a complex and challenging terrain in their ongoing mission to uphold investor protection.

Increasing Complexity of Cases for Securities Regulators

In 2022, securities regulators reported initiating 5,136 new investigations. However, it is revealed that the complexity of cases continues to mount, resulting in cases being opened in one year and not concluded until subsequent years. The total caseload of new and ongoing investigations handled by state regulators in 2022 reached 8,538, a significant increase from the 7,029 cases in 2021.

Importance of State Regulators Collaboration in Dealing with Cryptocurrency

Time Constraints in Returning Lost Funds to Fraud Victims

Returning lost funds to victims of fraud poses a challenge for regulators due to time constraints. Whether it is a traditional Ponzi scheme or a failed crypto venture, the urgency to halt fraud and freeze remaining assets is paramount, considering that the money may have already disappeared. Some crypto enforcement cases revealed solvency issues, prompting regulators to act swiftly to prevent further harm.

According to Nasaa’s survey, the trend of tech-reliant financial fraud shows no signs of slowing down. The number of investigations into social media and online scams increased from 127 in 2021 to 172 in 2022. Additionally, enforcement actions in these areas experienced a 30% rise from the previous year.

Looking ahead, survey respondents anticipate that artificial intelligence (AI) will play a significant role in financial schemes by 2024. In fact, 43% of respondents predict AI to be a major source of financial fraud, with 33% believing that AI scams will pose the primary threat to retail investors. This emerging concern was not prevalent a year ago but has since gained attention.

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