Ponzi schemes targeted by Californian regulators

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By Degen Lipsa

The California Department of Financial Protection and Innovation (DFPI) issued cease and desist orders against five businesses that were using the excitement surrounding AI to try to deceive unwary investors using Ponzi schemes.

What are Ponzi Schemes ?

Crypto Ponzi schemes are fraudulent investment schemes that are based on cryptocurrencies, such as Bitcoin, Ethereum, or other digital assets. These schemes operate in a similar way to traditional Ponzi schemes, but they use cryptocurrencies as the medium of exchange and often promise extremely high returns on investment.

In a crypto Ponzi scheme, investors are typically promised large returns on their investment within a short period of time, often through the use of multi-level marketing tactics or referral programs. The scheme operator may claim to be using advanced trading algorithms, mining operations, or other methods to generate profits, but in reality, the returns are paid out to earlier investors using the capital contributed by new investors.

Californian Regulator Takes Action Against AI-Based Alleged Crypto Ponzi Schemes
Image courtesy – finahukuk

No Information, Just Hype

The regulator claims that by marketing unregistered securities to the public, all five entities are in violation of the securities laws.

Furthermore, it is alleged that the companies involved misled, misrepresented, or outright falsified their financial model in order to deceive their clients.

Naturally, all five businesses offered high-yield investments, frequently guaranteeing daily minimum returns. Guaranteed returns on investments are practically difficult to accomplish, therefore not only is this a warning sign, but the minimum ROIs that were promised were higher than one could possibly anticipate, even by placing a wager on prospects with a high probability of success.

The move? These companies’ representatives assert that AI could be used to provide the claimed outcomes.

Cease and Desist Orders Issued

The targeted firms are leveraging the current buzz surrounding AI LLMs to lure investors into making potentially fatal mistakes, claims DFPI Commissioner Clothilde Hewitt.

“Today’s enforcement actions continue the DFPI’s crack down on investor fraud. Scammers are taking advantage of the recent buzz around artificial intelligence to entice investors into bogus schemes. We will continue our efforts to protect California consumers and investors by going after these unscrupulous actors.”

The company Maxpread Technologies, which guaranteed a minimum ROI of 0.6% every day, was the most blatantly targeted by the DFPI. In actuality, the business seems to run like a typical Ponzi scheme. The use of an AI-generated image of a made-up CEO is also thought to be involved, though this has not yet been confirmed.

The following three companies, Harvest Keeper, Visque Capital, and QuantFund, all provide guaranteed APRs between 1% and 4.81%. The businesses in issue all cited AI as the factor that allowed them to provide this guarantee as contrast to other businesses that made lofty APR promises.

Coinbot, which is effectively just another crypto-trading bot but this time driven by AI, is the final company to be targeted by the regulators. A minimum 1.5% daily ROI was promised by Coinbot to investors, reportedly obtained through trades made by the bot. Actually, the corporation only used money raised from newer investors to pay off previous investors.

Investors of all stripes, including VCs, established blue-chip companies, and individual investors, are quite interested in the current buzz surrounding AI. Similar to the shitcoin craze of 2017, until the buzz dies down, there will probably be a lot more attempts to capitalise on the trend.

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