Virtual Currencies Basics
August 10, 2018 Webinar


Coordinator:	Welcome and thank you for standing by. At this time all participants are in a listen-only mode. At the end of today's presentation we will conduct a question and answer session. To ask a question please press star 1. Today's conference is being recorded, if you have any objections you may disconnect at this time. 

	I would now like to turn the meeting over to Mr. Ken McDonnell. Sir, you may begin. 

Ken McDonnell:	Thank you very much, (Brendan). And greetings everyone and thank you all for agreeing to attend this webinar today which will be on virtual currencies; you will learn a lot of the basics. 

	For starting out, we have here our disclaimers which tells us that this presentation being made by the Bureau of Consumer Financial Protection Representative on behalf of the Bureau does not constitute legal interpretation, guidance or advice of the Bureau of Consumer Financial Protection. Any opinions or views stated by presenters are the presenters’ own and may not represent the views of the Bureau. 

	So our presenters today, you’ll have me, I am a Financial Education Program Analyst at the Bureau of Consumer Financial Protection. We’ll be joined by Meredith Scialabba, Consumer Outreach Specialist with the US Commodity Trading Futures Commission. We’ll be joined by Owen Donley; he is the Chief Counsel, Office of Investor Education and Advocacy at the US Securities and Exchange Commission; and Joseph Rotunda, Director of Enforcement and he is with the Texas State Securities Board and he will also be talking about resources for the North American Securities Administrators Association. 

	For the librarians who are on our call, I’d like to introduce you, if you're not familiar with our community financial education project. This project offers free and customizable resources which do not require you to be a financial expert. Through this project we help you meet your community’s financial education needs in five easy steps. 

	First, participate. There is no cost to you or your library for participating in our program. Through participating you’ll receive one email per month providing you with new resources, programming ideas, and ideas from other libraries. 
	
	Publications through our distributor in Pueblo, Colorado, you may order up to 1000 copies of each of our print publications. 

	Through programs we provide you with a list of programming ideas. The programming ideas are presented in a manner where you may pick and choose which ideas you think will work best for your library. 

	Through partnerships. Our partnership guidebook provides you with a framework for developing partnerships with local, state and national organizations, providing financial education resources. 

	And finally working with patrons, we’ll provide you with resources you may utilize to get the word out within your community that your library is a trusted resource of information to help your patrons make the best financial choices for themselves. 

	And so for all those librarians on the call right now who are not participating in our program, we encourage you to sign up. As you see here if you can send an email to financialeducation@cfpb.gov and we will enter you into our database and you will then receive our periodic emails, you’ll have resources for your patrons, also you may feel free to contact us with any questions that you may have if you're looking for a speaker or some resources. We’re more than happy to try to help connect you with financial education resources for your community. Again, please send an email to financialeducation@cpfb.gov. 

	So we’re going to start here with financial fraud. A 2017 study from the Stanford Center on Longevity and the Financial Industry Regulatory Authority’s Investor Education Foundation found an estimated annual cost of fraud in the United States is $50 billion and of that amount only $765 million, or 1.5% of that $50 billion is ever reported. Only 14% of victims report the incident to local law enforcement or a federal or state reporting agency. And the most common method of fraud solicitation, by 30% of individuals, was through the Internet. 

	So who is at risk or who is most at risk to this? A study by the Commodity Futures Trading Commission with the Financial Industry Regulatory Authority’s Investor Education Foundation came up with a profile of the typical victim of investment fraud and it might not be someone who you think. 

	When we think of a victim of fraud, we typically think of an elderly person. While seniors are certainly targets of fraudsters and schemes like charity scams or romance scams, the pre-retiree male is actually the most likely victim of investment fraud. This male is most likely married, ages 50-65, college educated, has a savings nest egg, open to high risk investments, belongs to religious or professional group, unlikely to check broker background and experienced a recent change in financial or health status. 

	And you’ll see on this chart before you the link to the resource if you'd like to obtain this information. So now I’d like to turn this over to our first speaker, who is Meredith with the Commodity Futures Trading Commission. Meredith. 

Meredith Scialabba:	Thank you, Ken. Good afternoon everyone. My name is Meredith Scialabba, and I am a Consumer Outreach Specialist at the United States Commodity Futures Trading Commission, also known as the CFTC. 

	Before I get started with my slides, I need to read the following disclaimer that is written in red, which says, “This presentation is being made by a representative of the US Commodity Futures Trading Commission on behalf of the Commission for educational and informational purposes only. It does not constitute legal interpretation, guidance or advice of the Commission. Any opinions or views stated by the presenters are my own and may not represent the Commissions’ views. References in this presentation to studies and news reports do not constitute endorsements, recommendations or favoring by the CFTC.” 

	Now that that’s over let’s get to it. Could I have the next slide please? Thank you, Ken. All right, let’s get to the agenda. I’m going to cover a bunch of items in my 15 minutes but I’m going to say up front that there will be a couple of slides where we're going to go into the weeds a little bit on virtual currency and Bitcoin. I promise to do my best with this information to make it as easily digestible as possible. But the most important takeaways from today from all of us are those helpful resources you can use and distribute to your libraries. 

	Next slide please. So here’s a slide about my federal agency, we’re a small agency in the federal government. We’ve got around 600 employees and we’re led by a chairman and commissioners. My office is located in Washington DC at headquarters but we also have three regional offices, New York, Chicago, and Kansas City. Our routes are agricultural focused as we were born out of the Department of Agriculture. However, the definition of commodity is quite broad. So over time our jurisdiction has expanded to include products outside of the agricultural space. 

	For the folks who engage in our market, they're trading rather than investing, so if you’ve ever seen the movie Trading Places, there’s a lot in that movie that’s about the markets we regulate. And so various individuals use our markets but what's most important to note is that we tend to see examples of fraud impact individual investors like you and me and even though we’re not the bulk users of our market, but I’ll get to that a bit more later. 

	And the mission of my agency is really about regulating our markets, making sure that they're transparent, promoting integrity and then of course protecting customers like you and me and everyone else who’s in our marketplace. 

	Next slide please. The office that I work for is the Office of Customer Education and Outreach, also known as the OCEO. We were established after the passage of Dodd Frank and our purpose is to administer educational initiatives just like this one today. And as I mentioned a little while ago, when it comes to fraud, the ones that we see here at my agency are often Ponzi schemes which means that someone is claiming to invest your money into something and they're not actually doing it; maybe they're spending the money or they're paying off other investors. 

	But our goal here with the office is to produce content that helps you and helps individuals about avoiding fraud. And with that we launched our first campaign in 2014 called Smart Check where we encourage investors to check their brokers’ registration, to check their background. You may not know this, but many - most financial professionals who are selling something, a product to you, must be registered or licensed either with the government or with a self-regulatory organization. 

	As part of this campaign we launched a website called Smartcheck.gov, which gives you access to multiple databases to check registration but also houses a lot of the content I’m going to talk about today and on other topics. 

	Next slide please. All right, to the fun stuff. So you may be wondering, how does the trading commodities and trading futures relate to virtual currencies like Bitcoin, which is an example of virtual currency. Well our agency decided that in 2015 virtual currencies are a commodity under the Commodity Exchange Act. So virtual currency is completely digital; there’s not actually a coin or a paper bill. And you may have seen logos for different virtual currencies like Bitcoin, Ethereum, Ripple, (Litcoin), but there actually isn't a coin you can put in your pocket. 

	And while some businesses may accept a virtual currency payment, it does not have legal tender status in the United States. So for example, you couldn’t extinguish a public or private debt and a creditor does not have to acknowledge it as a payment. So in the United States, for example, the dollar is the national currency which is considered legal tender. 

	Virtual currencies are also not backed by the government or Central Bank, the way that the US dollar is backed by the full faith and credit of the United States government. So then you're probably wondering, how do virtual currencies get their value? Well it’s completely derived by market forces of supply and demand, which makes it go up and down so much and makes it so volatile. 

	Okay, so then why would someone want to own or trade these virtual currencies? We’ll get into that a little bit later when I start to talk about Bitcoin. But if you want to buy a virtual currency, you have to purchase it from a platform, amongst other mechanisms, and you tend to store it in your own digital wallet. 

	Finally, the other way to buy virtual currencies is through an initial coin offering, or ICO, but I’ll let Owen from the SEC cover that in his presentation. Next slide please. 

	Okay, so Bitcoin is the largest and most well-known virtual currency out there. It was created in 2008 by a person or persons known as Satoshi Nakamoto with the belief what is needed is an electronic payment system based on crypto-graphic proof instead of trust allowing two willing parties to transact directly with each other without the need for a trusted third party. 

	Okay, so basically what that means is the thought behind it was to remove the trusted third party like a bank from a financial transaction. So let’s say I wanted to give Ken $100, other than giving him cash, I could write him a check or I could send him an electronic transfer, both of which would require a trusted third party to confirm. With Bitcoin the thought was to remove that barrier to transfer money between each other without that third party. 

	And so what about a trusted third party to confirm it? Well the idea was to make the transaction public so that all on the network can see it and have the transaction validated by others. Go to the next slide please. 

	So what are the characteristics of Bitcoin? And I think one more step back to take is one of the theories behind the establishment of Bitcoin and other virtual currencies is to really decentralize banking in the sense of money transfer. And so some of the characteristics here are that it’s anonymous, so even though the individuals may not have their name attached to it, there is an alphanumeric key or address attached to the transaction. 

	Another characteristic is that it relies on cryptography which involves algorithms to transact these transactions. And as I mentioned just a little while back, it also runs on a peer to peer network that’s decentralized and so the transactions are then placed on a public distributed ledger which is visible to the entire network and it’s also known as the block chain. You may have heard the term “block chain” being used frequently in the news. That’s because other firms and businesses around the world are looking to use that system as a way to do their business activities. 

	So whether or not virtual currencies are here to stay, I think is to be determined, but the technology of the public distributed ledger system and block chain is probably going to stay given that it’s a new and more efficient way of transacting. 

	And then finally, there is a concern about a lack of trust between the participants, having that again ledger public is a way for people to see it. And then finally I think then the goal of Bitcoin was really to eliminate that sort of central authority and not have a need for it if you're going to transact. 

	Next slide please. So where is the appeal here. As Ken mentioned previously when he showed you that profile of that 50-65 year old pre-retiree, that’s really the person who when it comes to investment fraud is the most likely victim and then that individual never really thinks they're a victim and that sort of plays into virtual currency a little bit. 

	Except we’re finding here whether it’s anecdotally or through the press or through our own research is that it’s really appealing to a younger demographic, so not necessarily that 50-65 year old pre-retiree, and a lot of it is about risk and young people are often more willing to take on risk. My first bullet talks about high school students, and there's an article that I cite there that actually talks a little bit about a mother and her son who’s 17 years old and he has his own account. He's trading crypt-currencies and her biggest challenge with his is that she can't even explain it, which again, as I just went through all those slides, it is very technical and complicated. 

	But even children as young as middle school are interested. I know that from staff, one of my colleagues in Utah was telling me as she was administering the stock market game, there were questions about, how do I buy Bitcoin? How do I invest in this? So kids are interested in it. And we’re seeing college students, this is sort of an unfortunate statistics, talking about using student loan money for it, and we also know that with Millennials feeling more confident in investing in this in the stock market or traditional investments. 

	And then finally Joe’s organization, North American Securities Administrators Association (NASAA) commissioned a survey that found that Millennials are most at risk for fraud because they are most likely to use (cyn-tech) products and virtual currencies are sort of falling into that space. So we know that there is definitely a younger cohort that’s interested; putting their money into it. I would also make the case that it’s a challenge for us as federal government agencies. This is a different audience for us to reach out to so we have to become a little bit more creative. 

	Next slide please. So what are the risks? If you want to actually purchase the coin or other virtual currencies, I think first thing to know and to understand is most of these places where you do purchase virtual currencies are often to regulated or supervised by a government agency. If something does go wrong the government may not have the authority to get involved. 

	Again, a lot of these transactions are online. So oftentimes some of these platforms may not have the same customer protections that perhaps other platforms do to really protect your account and protect your wallet. The volatility I discussed previously also goes to the fact that the prices go up and down a lot and that there’s flash crashes, which could be another risk factor. There’s also cyber risk such as hacking. There are some platforms that are not as trustworthy to work with because they're trying to mix with your account or maybe putting you at a different advantage. 

	Next slide please. But one thing I think all of us on the call today really want to draw your attention to is making sure that patrons know that red flags are still the same so whether we're talking about a charity scam or we’re talking about a different type of fraud such as a romance scam, it doesn't matter. All of the tactics and the techniques that people use to defraud others are still the same when it comes to virtual currency. Virtual currencies are just the new game. It’s the new product. It’s the new exciting thing and sometimes when that happens fraud can pop up around it. There’s certainly legitimate ways to buy and sell virtual currency. We want to make you aware that fraud can occur and has occurred. 

	Next slide please. And here are some tips for your library patrons. That there may be no recourse if your virtual currency is stolen. That maybe a factor that might prohibit someone to want to put their money in. Virtual currencies are commonly targeted by hackers and fraudsters. The most important piece of advice I think is, do not invest in products you do not understand. This is a complicated space so really making sure that if you’re library patrons are coming to you with questions that you can point them in the right place with resources. All of us will get to that in just a moment. 

	And we can go to the next slide please. So here are some resources that the CFTC has. We have a dedicated website called cftc.gov/Bitcoin. On this website we have four great consumer advisories, our newest one just came out this week on buying digital coins and tokens. I encourage you to take a look at those. You may print them out, have them available at your library. We also have two print brochures that are free to order and I have the website link here where you can order them. You're also welcome to contact me, my contact information will be available at the end of my presentation. And I’m happy to send them to you as well. 

	We also have some great podcasts that feature leaders in sort of the (cyn-tech) space and also our staff here at the CFTC. If you're really interested, we have some really in depth information on understanding and explaining virtual currency. Next slide please. 

	I want to highlight our website, Smartcheck.gov. I touched on it briefly before. We do have a lot of resources on here, in particular we have our true fraud stories, which is a video series that takes you through actual real victims of fraud that our agency has identified. We’ve had cases on them so you can actually go through their story and learn a little bit about what happened. If someone is coming to you with questions about engaging in binary options, which is a very complicated space, or even precious metals, we have a great video about a silver fraud. 

	Next slide please. So here I just list out for you on our resource page just some of the content that we have. We also have all the virtual currency resources on SmartCheck as well if you want to access them there. Next slide please. 

	And then here is our check page. I mentioned the importance of checking registration, and that goes for the firm or for the individual that’s trying to sell you something. This is a great way to know who you're working with, that they're legitimate, and that they're registered. You can do this directly from Smartcheck.gov. 

	Next slide please. And finally here is our contact information. We have our websites as well as our social media accounts. We have our email address here you may email directly to my office or you may email me. My email is mregine@cftc.gov. And look forward to any questions you might have. Thanks, Ken. 

Ken McDonnell:	Thank you very much, Meredith. So now we will turn to Mr. Owen Donley from the SEC. Owen. 

Owen Donley:	Hi. Thanks so much. Meredith mentioned one thing that I thought was really interesting. First I’m Owen Donley from the SEC. I’m here in Washington, DC. Good afternoon everyone, at least to everyone that’s not on the West Coast. Meredith mentioned one thing about how we as regulators are trying to be more creative as to how we educate the public on some of these really complicated issues. 

	One of the things that my office does is run a website full of resources that I’ll talk in a little bit called Investor.gov. We've put out articles on a number of subjects dealing with the federal securities laws and those include on some of the subjects we’re talking about today. What we found is we can get 10,000 or 20,000 or even 30,000 people to read a short form article about this subject, but we wanted to try to reach some more people. 

	Today I’m going to talk about one of the ways we've tried to do that and to provide it to you as an additional resource for people looking for more information on this. Next slide please. 

	Like everyone else, I need to offer a disclaimer, and I’ll read it verbatim. “The SEC as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees,” including me, “and the views I express today are mine and not necessarily those of the Commission or my colleagues on the staff at the Commission.” 

	Next slide please. So what did we do? Many of the ways that individual investors, and I assume library patrons, access crypto-currency is through what’s known as an initial coin offering - ICO for short. We see, as of last month, there were 1700, 1800 that we were aware of. This is most of what you're hearing about in the popular culture. I suspect many of you will get questions or people seeking more information about ICOs. 

	One of the things we know about ICOs at least that really smart people - had a professor come in and talk to me - is that some large subset of these are fraudulent. I’m going to focus on that piece of the market today. There are varying estimates - the space changes quickly - but one of the estimates I heard recently was that 25% of the ICOs out there are fraudulent and that means not that they're bad investment, not that they won't work out, but that they were actually fraudulent. 

	We issued an investor alert, which is a short form narrative publication, about three pages, describing these. As I mentioned at the outset, we got about 20,000 to 30,000 people to read it. But we want to reach more. So what we did was create a fake site. The fake site is called HoweyCoins.com. 

	I’m going to walk through it today with you all and hope that maybe you show it to your patrons. It’s meant to be a little creative, it’s more creative than usual, at least us at the SEC are able to get away with. So this is what it looks like. This is a very common page. There’s usually a nice image. It looks pretty high end and just to be clear, we spent very, very little money and did this almost entirely in-house. 

	There’s often something at the first, let’s say, you’ll see big buttons like Token Sale, or Bonuses and a countdown. You know, one of the sale tactics, not just fraud but in regular sales, is the sense of, oh my gosh, you have to invest now. Very few investments that are appropriate for retail investors, Main Street investors, are ones where investors will have to make a quick decision. In some of these ICOs you’ll see something like a timer on the front page. 

	But note the beautiful picture of a luxury resort and the ability to buy, that’s where token sale, or learn more. Next slide please. So you're going to hear on most of these sites, especially the ones that are fraud, a lot of breathless promotion. I actually wrote this one myself, were don't miss this exclusive opportunity. 

	I won't read through the entire site. If you are sitting there with phones right now, it looks great on mobile so feel free to call it up, HoweyCoins.com and you can sort of play along as I talk. 

	But some of the things you’ll see these attributes are real in the sense that they exist, but are fraudulent offerings. They’ll say things like officially registered with the government and trading on an SEC compliant exchange where you can buy and sell them for profit. There is no official registration with the government of these ICOs at this point. Anyone saying otherwise either doesn’t know what they're talking about or they're trying to mislead you. 

	Often the first thing you see on these pages, after a beautiful image, is hype like don't miss this opportunity. Next slide please. You’ll often see a ladder and the ladder is if you get in at a certain time you get a better deal. You’ll note the top of this is investors can purchase HoweyCoins with any major credit card. No lawful broker/dealer will accept - well I should be more careful - very, very few registered broker dealers will accept payments for securities in credit cards. 

	That alone should perk up your ears, paying with a credit card raises a ton of issues. We actually issued an investor alert from the SEC on paying with a credit card for securities and you can find that on investor.gov as well. 

	Next slide please. So this is what they sort of look like. We’ll go through the next three slides pretty quickly. So they’ll often say something like the Platinum if you invest by a certain date you get a double 25% discount, or if you're gold you get a single 25% discount. Now this is my favorite one, and the next one is, if you're silver you get a double 12.5% discount. 

	Now we thought that was pretty funny because what’s the difference between a single 25% discount or a double 12.5% discount? I don't know. But you’ll note at the bottom in the blue it’s Buy Coins Now. That’s one of the things you’ll see on some of these sites. Next slide please. 

	You’ll often see a purported list of who the founders are. You’ll see these six people right there, those people, except for the one on the far left, are people from our office of Public Affairs who helped us build the site and did the design work. The very shady person on the left with the name Josh Hines, that’s actually me, Owen, making a funny face. None of those names are real, they're all made up. You will often see founders’ names and I think Joe might talk about it later, I saw a case I believe out of Texas recently where the photographs of the founders were just cut and pasted from other people’s websites, with nothing to do with the enterprise. 

	So one thing we always encourage folks to do is to do a background check of the people they're dealing with. You know, as Meredith talked about, and I’ll talk about later, there are resources to make sure someone’s a licensed broker dealer or investment advisor, but also just doing a Google search to see who’s the promoter can be very valuable. 

	Next slide please. Okay, one thing you’ll often see, and we've seen a number in this space, are celebrity promoters where a celebrity promotes an investor. We of course couldn’t say it’s a bad investment or it’s fraudulent. But the fact that a celebrity promotes an investment certainly is not indicative of it being a particularly good investment and a number of cases we've seen unregistered and fraudulent investments promoted by celebrates. We integrated this attribute of ICOs into our site. 

	Next slide please. You’ll often see them promoted on social media. We made up three Twitter handles. We thought the quotes were pretty funny. We had one who was a drummer and one was a boxer and the boxing champ said, “I’m all about HoweyCoins, this thing is going to pop at the top.” You know, just sort of the type of hype salesmanship you might expect in a fraud, you’ll certainly see many of these ICOs. 

	Next slide please. Finally, and this is probably the biggest element of fraud or at least the biggest red flag of fraud, many of these ICOs are participating in what we call pump and dumps. A pump and dump is when a promoter will try to talk up a stock or an investment to the public to raise the price. In the more typical penny stock security space, a promoter will get online and lie; they’ll say something like this company is about to get a new contract, this company is about to make a new product to drive up the price. 

	When enough people have purchased it, the promoter sells all the stock they have, the price drops when the truth gets out and the people are left holding the bag are the individual investors. This is absolutely happening in the fraudulent ICO space. How do we know that? This is the really interesting part; because they actually often say so. There are on a number of different social media platforms, promoters say, we are going to pump this up at this day at this time, get in by then, before the pump happens. We've actually see these on the sites. Now this is obviously an exceptionally red - red flag but it does exist and it’s worth noting. 

	If anyone offers to tell you the right time in the sense that something is about to explode or an investment is about to explode, be very skeptical. That sounds either like fraud or inside information. Next slide please. 

	So what would happen if you clicked anywhere on the HoweyCoin site and literally hundreds of thousands of people did, to purchase or to get more information? What you would be directed to is to Investor.gov, which is the website that we at the SEC run. This is the page that your patrons would see, if they responded to an offer like this, you could have been scammed. HoweyCoins are fake. 

	Then we went through and sort of pointed out the red flags. Next slide please. I won't go through these. This is more just as a demonstration of what kind of resource this could be and hopefully sort of fun. The first red flag claims of high guaranteed returns, another red flag, celebrity endorsements. Next slide please. 

	Claims of SEC compliance, investing with a credit card, pump and dump scams be the final one that we just talked about. On the Howey, on our educational website, we describe in that narrative more examples. What it really feels like and other places your patrons can learn more about those. Next slide please. 

	At the end, and this may be of most value, I think like the CFTC and Meredith and our friends at NASAA, and the CFPB, we have a ton of resources. So at the end of this page we note information from the Commodities Future Trading Commission, from Meredith’s organization, from NASAA of which Texas where Joe represents is a member, from the CFPB, from Ken, and then all the content at Investor.gov. 

	You can find this content probably on any of our spaces and they're all available for free, as much as you want. I guess the point of this is there is a ton of information out there and one place you’ll find it is at the end of the HoweyCoins presentation. Next slide please. 

	Finally all of this is available on Investor.gov including links to my colleagues at other federal agencies and to FINRA, a self-regulatory organization which oversees the brokerage industry. You can type in the search box if you're interested in a particular subject, but we are spotlighting on this subject right now. 

	Finally, the last slide, this is our office, the Office of Investor Education and Advocacy. That’s actually my phone number and my email. I’m more than happy to talk to anyone about what we can do to help. Also for your patrons, this s a phone number that you’ll see up there, 800-732-0330. We take about 20,000 calls and pieces of correspondence a year from investors who have questions. We stand by ready to help 9:00 to 5:30, you can leave a message and we’ll get back to you. 

	As you have patrons asking questions about this, there’s a lot of resources out there. We hope this is one of the more creative and fun ones. And we greatly appreciate you sharing it with those who are interested. Thanks so much. That’s my presentation for the day. 

Ken McDonnell:	Thank you very much, Owen. Now we will turn over to Joseph Rotunda from the Texas State Securities Board. Joe. 

Joseph Rotunda:	I appreciate it. Thanks, Ken. And thanks, everybody else. I am Joe Rotunda. I’m the Director of the Enforcement at the Texas State Securities Board. The Texas State Securities Board for those of you that aren't familiar with us is a state agency and we’re responsible for regulating the securities industry in Texas. We’re also a member of what you’ve heard of as NASAA, it’s not NASA launching the space shuttles, this is NASAA spelled NASAA. It stands for the North American Securities Administrators Association. 

	It was organized in 1919 and it’s the oldest international organization devoted to investor protection. It is a voluntary association whose membership consists of 67 state, provincial and territorial securities administrators in 50 states, the District of Columbia, Puerto Rico, the US Virgin Islands, Canada, and Mexico. If we go to the next slide, I’ll give you a little bit of an introduction about what I’m going to talk about. 

	To tell you a little bit about what our agency does, we’re responsible for administering and enforcing the Texas Securities Act. The Texas Securities Act are the state securities laws that govern securities transactions in Texas. What that really means is that we're responsible for protecting investors. We do that in a couple of different ways. 

	We register individuals who want to offer or sell securities in Texas or render investment advice in Texas. We conduct oversight of registered firms largely by performing onsite inspections of their books and records to make sure they're not engaging in any type of a legal or fraudulent or unlawful practice. We also investigate suspect securities offerings. When we find a violation, we often pursue administrative, civil or criminal actions against promoters of fraudulent schemes. 

	So we’re looking at investments. One thing that we noted was that late last year and everyone’s probably familiar with this but I just want to touch on it because I think it’s a very important point, late last year the price of Bitcoin, as well as other crypto-currencies, soared. I’ve included a chart in here that shows that the price of Bitcoin itself was about $7777 per coin in November of 2017, which itself marked a sharp increase in price from the price of Bitcoin earlier that year, but it increased in about 30 days from $7777 to $19,200 on December 17. 

	We know as securities regulators that the crooks and the criminals often follow the news; they follow the hype, they try to get it on the buzz because that’s a good way to broadly recruit victims into their fraudulent schemes. So on the next day on December 18, in Texas, in response to the sharp increase in the price of crypto-currencies, the Securities’ Board’s Enforcement Division initiated a sweep of promoters advertising suspect securities offerings tied to crypto-currencies to Texas residents. 

	We wanted to see what was going on in the market, in other words. We were looking at public advertisements. We were looking at web pages. We were looking at online message boards and market places. We wanted to see exactly what was going on in the market where people were promoting crypto-currency offerings. We were shocked with what we found. We opened 32 investigations of suspect crypto-currency investments over the next 30 days .

	If we could go to the next slide please. I’ll tell you a little bit about what we found. Out of the 32 different investigations we found that more than half of the offerings were tied to Bitcoin, which made sense because the price of Bitcoin had skyrocketed. But seven promoters were offering securities tied to a new crypto-currency, and six were offering securities tied to existing crypto-currencies. So what that meant is there were some variety in the marketplace, it wasn’t just Bitcoin, it was other types of crypto-currency investments. 

	The other thing we noted is that although a lot of these promoters were required to be registered to sell securities in Texas, none of them were, not a single one. Six of these 32 promoters were actually actively recruiting unregistered sales agents to illegally offer the securitized crypto-currencies in Texas. Oftentimes these unregistered sales agents were investors themselves, so investors were told that if they would bring in their friends and family perhaps by promoting a particular investment in crypto-currencies through social media, through their online blogs, through email, through tweets, they'd receive 10% or 20% commission paid to them based on the amount that their referrals invested. 

	We also found that many of these offerings only existed in cyberspace. A surprising number of promoters actually concealed their physical location. There was no record of a physical location where the business was operating. Out of the 32 targeted investigations, only 11 promoters provided investors with tier physical address or identified their principle place of business. So what told us is that a lot of these offerings existed solely in cyberspace? There were promises made by an unidentified or unknown person from an unknown location to investors about how they would handle their retirement savings. 

	We found that many of these promoters were also engaging in other types of fraud, not only concealing the principle place of business, concealing the identities of the promoters but oftentimes concealing risks associated with the investment or even requiring investors to disclaim the protections afforded by the securities laws. 

	So taking that information into account, we brought 10 emergency actions in Texas targeting firms that were targeting our citizens to invest in illegal and fraudulent crypto-currency programs. These were injunctive actions; the injunctive actions were designed to stop ongoing fraud, to stop promoters from broadly recruiting victims into their schemes. 

	If we could go to the next slide. We summarized our findings in a recent publication, and I’ll talk with that resource a little bit later. I think it’s important because it provides tips for investors that we learned during our sweep of crypto-currency offerings and it provided examples of fraudulent investments tied to crypto-currencies. 

	But, you know, sometimes it’s easier to show than to talk about these issues, so I wanted to walk you all through a fraud that we typically see being promoted to potential investors. These are going to be your patrons, these are going to be just everyday middle class investors who are interested in crypto-currencies, and so what I’m going to use is a recent case. The promoter was named Lead Invest. I’m going to kind of walk you from beginning to end of exactly what was happening with that promotion and the red flags that we saw with it, the risks we saw with it and the reasons we thought it was fraudulent. 

	So this slide right there, this shows Craigslist. We’re all familiar with Craigslist. It’s an online marketplace where individuals can buy and sell goods and services from each other. What we noticed is towards the end of last year promoters started advertising investments in crypto-currency on Craigslist. 

	What the screenshot shows is a local Craigslist marketplace. You’ll see in the top row there’s two slides for a company that has a bunch of gold coins stacked up. They're really the moniker of Bitcoin. It’s called Lead Invest. If we can go to the next slide, that’s what that little advertisement showed. It directed investors to go to Leadinvest.net and it said, “Relax, and earn interest on the crypto market.” This is your first step towards a better a future. It’s a very positive message. It directed investors to go to a particular website and, if you go to the next slide, I’ll show you a little excerpt from that website. 

	It was very, very professional. Investors were greeted with what appeared to be a very legitimate website maintained by a professional firm. Now as Owen mentioned, many of these companies may be using fictitious or fake profiles of managers on their websites to try to legitimatize their schemes. I think that’s what we saw with Lead Invest. 

	So what I’ve done is I've included a graphic here where you can see the profiles of Lead Invest’s quote unquote, team. It’s got portraits of different individuals. It identifies them by name. It also identifies them by responsibility. So investors were able to take a look at this and see who would be responsible for managing their investments in crypto-currency. 

	Now if we can go to the next slide, this is just a blown up picture of one of the individuals. This individual according to the website, was named Simone Roger. She was in chart of business development, marketing and operations. But things aren't always as they appear. It’s the Internet, so we know we need to be extra vigilant and do due diligence. 

	If we can go to the next slide, this is the real person behind Simone Rogers. We found this image of an attorney who was licensed to practice in Texas. What we learned is that Lead Invest had actually lifted this picture and put it on their website to try to show that the person pictured as a Texas attorney was actually involved with Lead Invest. 

	In other words, Lead Invest combed the Internet, found a picture of a person completely unrelated to their scheme, and without their consent, misappropriated that image to try to show investors they were operating a legitimate scheme with a skilled management team. 

	We found that for all of the promoters associated with Lead Invest. It wasn’t just this one Simone Rogers; it was all of the persons associated with Lead Invest’s team. It got to be a little bit outrageous. Let’s go to the next slide please. Investors were shown on the Lead Invest website, that Lead Invest maintained a code of ethics association that was responsible for different legal dealings, maybe contract law, due diligence, corporate law, and that investors could rest assured that this code of ethics association was making sure that everything was above the board everything was on par with the law. 

	It was kind of like the Simone Rogers deal though. We can blow up that picture by going to the next slide. So the picture is a little bit bigger. You can see a picture of the code of ethics association. I don't know if you can recognize anybody in that picture. It’s a little bit distorted on my display, but if you can, you probably know that it’s something wrong with this. I’ll give you a second. And we’ll go onto the next slide if we could please. 

	We found that picture was lifted from the George Washington School of Law publication titled Legal Briefs from fall 2005. It was an addition of legal briefs that was addressing the recent demise of Supreme Court Justice Rehnquist. And the persons in that picture had attended the ceremony at George Washington School of Law. 

	If we can go to the next slide. These are the persons who are actually depicted in that picture, Deputy Solicitor General Maureen Mahoney; Solicitor General Ted Olsen; Supreme Court Justice Ruth Bader Ginsburg; Duke School of Law Walter E Dellinger III; Solicitor General Paul Clement and Solicitor General Seth Waxman. 

	None of these individuals obviously was associated with Lead Invest, and it was pretty clear to us that Lead Invest had misappropriated this picture. We obtained evidence that proved without the consent of George Washington School of Law. This was put on the website and that Ruth Bader Ginsburg was not selling investment in Bitcoin. 

	We know some flags are redder than others. A really big red flag is when some of the most prominent lawyers in the country are depicted as selling investments in crypto-currency. 

	So what we did we entered an emergency action against the firm. We found the firm was engaging in fraud, not just limited to the misappropriation of these images, it was doing everything from failing to disclose risks, not identifying its principle place of business, not saying who was truly behind the company, not really talking about the way it was going to make a significant return for investors in crypto-currencies. 

	So we entered an emergency action to shut it down and immediately after earning that emergency action, let’s go to the next slide, Lead Invest went dark. It disappeared. That’s what we found with a lot of these online crypto-currency investment programs. They're very fragile. They're very volatile and they can disappear overnight. A lot of that’s the product of concealing the identity of principles, concealing a particular place of business, and just really making promises through online communication. 

	If we can go to the next slide. So we summarize the Lead Invest case as well as a lot of the information that we drew from other law enforcement actions in a publication that's available on our website. Now this is our website, it’s SSB.texas.gov. If you go to our website you’ll be able to access this report. It’s written from a perspective of a person who has no real financial expertise and no expertise in crypto-currencies. Our goal was to educate the average consumer about the risks associated with investing in crypto-currency. 

	We put that report out and it’s got a lot of very positive feedback. If we can go to the next slide. What we’re trying to say is that, we’re putting together an even more detailed report. Our crypto-currency sweep ended in January and since that time we've learned a whole lot more about the market and we want to convey that information to consumers. These are going to be people that are visiting your associations, visiting your libraries and so that report is going to be available very, very soon. 

	So go to the next slide and this one right here, this is NASAA. I spoke a little bit before about NASAA being one of the oldest institutions in the international field dedicated to investor protection. As part of NASAA with Texas, we led a sweep, an international taskforce of securities regulators from the United States and Canada. What we did is we coordinated our law enforcement actions against fraudulent crypto-currency investments largely focusing on the initial coin offerings. 

	The task force was comprised of members from more than 40 different jurisdictions. The members opened nearly 70 inquiries and investigations targeting suspect investments in crypto-currencies and ICOs. The members pursued more than 35 different law enforcement actions. 

	I put a quote in here from Joe Borg, who’s the President of NASAA, and he said, that “The actions announced during the sweep are just the tip of the iceberg.” He noted that we found more than 30,000 crypto-related domain name registrations, the vast majority of which appeared in 2017 and 2018. I believe these are websites that promoters may use to tout crypto-currencies and possibly fraudulent investments in crypto-currencies. 

	If we go to the next slide. This is NASAA’s website. NASAA’s website is accessible at www.nasaa.org. NASAA’s taskforce, the one from earlier this year, wasn’t NASAA’s first attempt to bring awareness to crypto-currencies and fraudulent investments in crypto-currencies. NASAA actually began publishing information about the risks associated with investing in crypto-currencies in 2013. Information that NASAA has compiled is available on its website. I want to call your attention to a few of these different resources. 

	First, as you can see on this slide, there’s a link on the front page of NASAA’s website that says, “Contact your regulator.” NASAA’s website contains a depository of information for every state and Canadian regulator. It includes an email address that consumers can use to reach a regulatory agency in their state. It includes a telephone number that consumers can use to call the regulator in their state. It includes the names of persons who are heading up those agencies, who are going to be contacts for those agencies, and it also includes the website for the agencies where investors can go and get resources that provide them with information about different types of investments and especially now the risks of investing in crypto-currencies. 

	Go to the next slide. NASAA’s website also highlights key contemporary issues including many of the issues tied to investments in crypto-currencies and initial coin offerings. What you’ll see on NASAA’s website is it will keep the most recent releases related to these topics on the front page where you can very quickly access these. You can see right now - well if you go to the next slide - we have some of the information listed under the Investor Advisory section. 

	This is important educational resources for investors that touch upon variety of issues. What you’ll see here is that many of these resources include information about investments in crypto-currencies and crypto-currency coin offerings. You’ll find a wealth of information here. It’s information that includes resources for average persons who want to learn about investing in traditional products or in crypto-currencies. It includes advisories which incorporate many of the risks associated with different crypto-currency offerings that are rising in real times. 

	You'll also find a fraud center. What the fraud center does is it contains content that’s designed to promote education and awareness. A lot of the fraud materials on NASAA’s website right now recognize that investors are being threatened by fraudulent investments in crypto-currencies or promoters who are offering fraudulent investments in crypto-currencies so it’s really geared towards them. 

	So in closing, I’d really like to stress the importance of taking a look at not only the websites that have been mentioned throughout these programs but also the websites for different state security regulators, such as my agency with the Texas State Securities Board, but also NASAA’s website. Don't hesitate to go to NASAA’s website, click the link, Contact Your Regulator, and get in touch with one of us. We’re here to help and that’s our job. 

	And that’s all I have. I’ll turn it back over to you, Ken. 

Ken McDonnell:	Thank you very much, Joe. And thank you to Owen and Meredith for such an excellent presentation. So (Brandon), at this point we’d like to open it up for any questions. Does anyone have any questions? 

Coordinator:	At this time if you would like to ask a question please press star 1, please unmute your phone and record your first and last name clearly when prompted. Your name is required to introduce your question. To withdraw your question you may press star 2. Once again at this time if you would like to ask a question please press star 1. 

Ken McDonnell:	We do have a question that was submitted in, whether the slides will be available afterwards. This webinar is being recorded and it will be put onto the Bureau of Consumer of Financial Protection’s website. If you could send an email to financialeducation@cfpb.gov, and just ask me to submit the link to you when it’s available and I will do that for you. 

	With regards to any of the other particular slide sets, I’d encourage you to reach out to one of the other speakers to see if they can make that available to you. 

Coordinator:	All right, and we have a question from (Patricia Barrons), your line is open. 

(Patricia Barrons):	Okay. Thank you very much. This is all very, very interesting. I was wondering through - so this was all so focused on fraud, so what about information sources for non-fraudulent virtual currency data? You know, is there some sort of a source where one could go to find out, well these are all the legitimate virtual currencies and these are the values, you know, the current values and, you know, some sort of a data source that you know of? Any of you? 

Owen Donley:	Hi, so this is Owen Donley from the SEC. I can start with our piece. I mean, one of the reasons we focused on fraud is because there’s so much fraud in this space. When investing in stock or in securities, the federal securities laws, securities like a mutual fund, investment securities, or an ETF, one of the more traditional products you’ve heard of, the federal securities laws requires a great deal of disclosure. It comes in various forms. It might be a registration statement or an annual report. The disclosure provides, this is who’s behind the investment, this is who audited their financials. This regime does not exist in current time in the ICO space and there is not a government regulator who is keeping a compendium of this information. 

	So there is no - at least from the security side - there is no government place to get objective verified information on these non-securities issues. So there are of course sites that do provide information on ICOs and crypto. I would not offer to weigh in on the value of any particular one. You can find them on the website. I would just be very careful to understand who’s giving you the information and do as much research as possible before making any decision based on something you read on one of these non-government sites. 

(Patricia Barrons):	Okay, great. Thank you very much. 

Coordinator:	Our next question is from (Heather Thompson), your line is open. 

(Heather Thompson):	So I’d like to know out of all the presenters who is able to come to Oklahoma to present on these topics? We’d love to have you. 

Ken McDonnell:	Joe, would that be something that she could submit to the Oklahoma regulator? 

Joseph Rotunda:	Yes, absolutely. And if you want, get in touch with me and we’ll see if we can make something happen, too. I can also coordinate through NASAA. So what you can do is you can go to the NASAA website and you and click on the link that says, Contact Your Regulator and that’ll give you information for contacting the Oklahoma regulator. Then if you want to follow up with me to help work out some of the logistics I will be more than welcome to do that. You could just find my contact information in the same place. 

(Heather Thompson):	Okay. Thank you very much. 

Owen Donley:	This is Owen from the SEC. Meredith and I have done presentations in this space together. Feel free to reach out. Sometimes traveling is hard with budget and we try to work with the states to find the right person but we can certainly help you know, along with Joe and NASAA. We can certainly help find someone who can get out there even if it’s not us personally. 

Meredith Scialabba:	I third that as well. This is Meredith, so feel free to reach out to us and we’ll do our best to try to get you someone. 

(Heather Thompson):	Okay, because we just recently had a four-part series of financial education classes on Saturdays in June, and some of the questions were what about Bitcoin. I don't know enough. I was presenting, but still it was only one of our speakers who was an investor, of course they're not selling their services, but only one of them really knew much about the Bitcoin industry. That was something that I think that much more information needs to be shared because I know nothing about it at all. It’s kind of scary to me but I’m also in my 40s so it’s not something that I would be trying or probably researching. So hearing from the experts about this I think is really important. We have a wide variety of people who use all of our libraries and we have great demographic information to show most of our libraries have more Millennials and things like this come in. I think we would have a really good market for people for you all to come and present and have people attend and learn more.

Meredith Scialabba:	Yes, if you could just reach out, I know one of my colleagues is from Tulsa so he's always excited whenever there’s an opportunity for Oklahoma. So yes, please reach out…

(Heather Thompson):	Okay. 

Meredith Scialabba:	…reach out to us, we’ll do our best to get you someone for sure. 

(Heather Thompson):	Thank you. 

Coordinator:	I’m showing no further questions at this time. 

Ken McDonnell:	One question that did come through on the chat box, a repeat of the Bureau of Consumer Financial Protections email address of financialeducation, type that out as one word, financialeducation@cfpb.gov. 

	If we don't have any more questions, I would like to thank all of you for participating. Again, please feel free to reach out to all of us at any point in time. We’re always more than happy to do whatever we can to help you because we know that you are there serving customers and consumers all across the country. We thank you very much for that service that you all do. So if we could conclude at this point.

Coordinator:	And this now concludes today's conference. All lines may disconnect at this time. 

Owen Donley:	Thanks, Ken. 

Ken McDonnell:	Thank you, all.