For the last two years, the fraud recovery lawyers at Mahany Law have been working with clients burned by cryptocurrency scams. Unfortunately, in many of these cases, “winning” is easy but collecting is impossible. That may change now that mainstream brokerage firms are sticking their toe in the crypto world.
For years, most cryptocurrency ICOs (initial coin offerings) were sold direct to consumers and were often scams. They were sold through “white papers.” We found many where the officers listed were fictious, the address for their registered office was a vacant lot or their claims were unsubstantiated and unverifiable.
We all know that claims of 20% per month are probably fake. Yet early Bitcoin investors made incredible profits. That leads many to through common sense out the window and hope they become the next crypto millionaire. Few are successful.
That’s why we say these cases are easy to “win.” But winning in court may sound great but it is really a waste of time and expense if you can’t collect. Since most investor recovery cases are handled on a contingency fee basis, when no deep pockets are available to satisfy the judgment, there is no money for the client and none for the lawyers.
The one exception has been with claims against stockbrokers who “sell away.”
Selling Away – a Quick Recap
Selling away occurs when a stockbroker or financial advisor solicits a customer to purchase securities not approved or offered through his or her employer [the brokerage firm]. These activities almost always violate securities regulations and FINRA exchange rules.
Brokerage firms are generally responsible for the actions of their registered representatives and advisers. That means a customer has a claim against the brokerage firm even if the firm didn’t even know these activities were taking place and didn’t receive any compensation from the transaction.
Selling away is why so many brokerage firms record calls and require correspondence be approved before sending to a customer. That doesn’t work, of course, if the broker asks the customer to send the purchase money directly to the broker personally or to a third party.
Stockbrokers sometimes sell away because the commissions they can make by selling these ICO investments are far higher than a traditional brokerage trade.
Enter TD Ameritrade, Apex Clearing and SogoTrade Inc.
According to a press release, Apex Clearing Corporation and Apex Crypto have announced the launch of a first-of-its-kind cryptocurrency platform. The company says its platform “provides broker-dealers and financial advisors with access to a simple, fast and effective way to introduce digital currency trading into their clients’ portfolios.”
And their first customer? SogoTrade Inc. The release quotes SogoTrade CEO Jonathan Yao saying, “We’re excited to be one of the first online broker-dealer firms providing access to seamless cryptocurrency investment.”
If Sogo is the little guy on the block, TD Ameritrade is the 800 lbs. gorilla. And TD Ameritrade says they are awaiting regulatory approval to roll out their partnership with ErisX, “an innovative company that plans to offer traders access to cryptocurrency spot contracts, as well as futures contracts, on a single exchange.”
Fidelity appears to be right up there too with a proposed partnership with digital wallet giant Coinbase. Interestingly within days of Apex Clearing and Sogo announcing their foray into the digital currency world, a federal judge in San Francisco refused to dismiss negligence claims against Coinbase for their handling of the Bitcoin cash launch.
How do we feel?
We are a bit worried.
We have no reason to believe that Apex Trading or Sogo Trade have been engaged in any wrongdoing. SogoTrade has been in business since 1986 and although they have 3 reportable events on their record, the violations are very minor. Mistakes happen, especially with a firm in business for over 30 years. It’s too early to see what TD Ameritrade and Fidelity may do.
We worry, however, that many broker dealers will enter the space. That includes broker dealers with a poor record. Remember, until now when a stockbroker was involved in one of these scams, it was usually a single person acting rogue. These were the people selling away.
Now that clearing brokers are willing to get involved, it is much easier for morally bankrupt broker dealers to get involved.
Do you remember Jordan Belfort and Stratton Oakmont? The movie Wolf of Wall Street? Can you imagine the damage that firm could have done to the public if they were trading in cryptocurrency investments?
Did You Use Money in a Cryptocurrency Scam?
First things first. We want to help you avoid a cryptocurrency scam.
Be especially wary of any investments where the person peddling it can’t explain it. We see this all the time in the crypto world where many people offering these deals can’t explain how blockchain works.
Better yet, even if the person selling sounds like they know what they are saying, never buy anything that you personally don’t understand.
Next, if it sounds too good to be true, it probably is.
Third, do your own diligence before investing.
The stockbroker fraud lawyers at Mahany Law can help you if you lost money in a cryptocurrency investment. Our practice is limited to losses of at least $100,000 and situations where the loss happened with the assistance or participation of a licensed broker dealer firm or registered representative. Whether the investment was made through the broker or the brokerage firm does not matter.
To know more, contact us online, by email or by telephone at 202-800-9791. We accept clients in all states. All inquiries are protected by the attorney – client privilege and kept confidential. Cases are handled on a contingency fee basis.
*The SogoTrade logo is a registered trademark of SogoTrade, Inc.