Securities.io is committed to rigorous editorial standards. We may receive compensation when you click on links to products we review. Please view our affiliate disclosure. Trading involves risk which may result in the loss of capital.
Due to the growing number of complaints regarding cryptocurrency scams and fraud-involving incidents, the Californian Department of Financial Protection and Innovation decided that it needs to increase its visibility. To achieve this, it decided to start a collaboration with digital currency influencers, who will help promote its work.
Californian legislators revamped the agency last year, granting it authority over the consumer financial services, which was previously an unregulated sector. This now also includes the digital currency industry, as California allowed the industry to operate in a regulatory gray zone. This was necessary because the legislators could not determine which crypto services should be governed by the existing rules regarding money transmitters.
A surge in crypto scams
The cryptocurrency industry has seen a massive increase in user activity, which also led to a growth in the number of scams and frauds. The more people there are, the greater the chances that scammers would run into crypto users who lack the understanding of the risks and methods of protecting themselves.
In the aftermath, the agency received a total of 326 complaints regarding digital currency products and services between January 1st, 2021, and February 14th, 2022. Estimates say that a total of $7.75 million was lost to scammers, fraudsters, and hackers who compromised user accounts. In addition to this, another $2.26 million was lost due to account freezes, processing delays, and accessibility issues.
So far, the agency has not used its new authority to take action against any specific digital currency firm, but its Commissioner Clothilde Hewlett stated that the agency is leading the way when it comes to establishing responsible financial innovation. She added that there were multiple productive conversations with firms that offer crypto services, which ensured the agency that they will continue to do everything in their power to ensure that all consumers are treated fairly.
Coinbase and Binance were mentioned by name in nearly half of complaints
Interestingly, a large majority of complaints were made against two of the world’s largest cryptocurrency exchanges — Binance and Coinbase. Binance is no stranger to regulatory issues, and it has a history of misleading the public regarding where it is headquartered, and it even offered tokenized stocks and similar products without previously obtaining licenses for such products. This caused regulators around the world to warn users against the exchange, while a number of banks have discontinued support for the exchange, preventing users from depositing their money into the exchange’s account, for their own protection.
However, Coinbase is a regulated cryptocurrency exchange that operates in the United States, where financial laws are not only extremely strict, but the regulators are still quite opposed to the idea of cryptocurrency. As a result, the fact as nearly 30% of complaints concerns Coinbase does come as a surprise. Binance, on the other hand, is featured in 17% of complaints.
It is also interesting to note that no other specific business was mentioned in more than 4% of complaints. The agency responded by saying that it can send fraud accusations to criminal authorities, but so far, it did not do so.
Binance.US’ spokesperson responded to the past developments by saying that the company has taken its past issues with the regulator seriously and that it did everything in its power to delist the assets that should not be offered. As for the current complaints, it said that it is always working to ensure a positive customer experience, without directly explaining what happened in any individual case.
Coinbase spokesperson addressed the complaints only by saying that the platform is using extensive security measures and that it has taken steps to educate its users on how to avoid scams.