California’s financial regulator has taken action against several alleged crypto Ponzi schemes that are based on Artificial Intelligence (AI). The regulator has identified that these schemes targeted vulnerable sections of society and allegedly defrauded investors of millions of dollars. The regulator’s move highlights the risks associated with the rising trend of AI-based investment schemes and the need for greater oversight to protect consumers. The action is likely to be a deterrent to other potential fraudsters who seek to take advantage of the growing popularity of cryptocurrencies and associated technologies.
The Californian Department of Financial Protection and Innovation (DFPI) has issued cease and desist orders to five companies trying to scam investors through the hype around artificial intelligence (AI). The regulator claims that all five companies have violated securities law by offering unregistered securities to the public. The companies in question are also alleged to have lied to their customers by omission or falsification of their financial model, misleading investors of the potential risks. All five firms offered very high-yield investments, promising impossible minimum returns every single day. Promised minimum ROIs were larger than what investors could reasonably expect even by betting on blue-chip opportunities.
However, according to the companies, such results could be achieved with the help of AI technology. These companies include Maxpread Technologies, Harvest Keeper, Visque Capital, QuantFund, and Coinbot. Maxpread Technologies is the most brazen of the five and promised a minimum ROI of 0.6% per day. In reality, the company appears to operate like a regular Ponzi scheme. The firm is also believed to be using an AI-generated representation of a fictional CEO.
Harvest Keeper, Visque Capital, and QuantFund all offer between 1% and 4.81% guaranteed APRs. The companies in question all named AI as the reason why they can offer this guarantee. The final company on the list, Coinbot, offers a crypto-trading bot powered by AI, which promises a minimum 1.5% daily ROI. However, in reality, the company merely paid older investors with funds gathered from newer investors.
DFPI Commissioner Clothilde Hewitt stated that these entities are using recent hype around AI to entice investors to make potentially grave errors. According to her, these actions are merely part of DFPI’s crack down on investor fraud, and the organization will continue to protect California’s consumers and investors by going after these unscrupulous actors.
The current buzz around AI has gathered much interest from VCs, existing blue-chip corporations, and retail investors alike. Nevertheless, until the hype cools down, we will likely see many more attempts to cash in on the trend, similar to the shitcoin boom of 2017. It is always essential to verify the legitimacy of investment opportunities, especially when the promised returns are too good to be true.