The Investor Protection Unit of the Delaware Department of Justice has issued a Summary Order to Cease and Desist against respondents linked to a cryptocurrency scam known as the “pig butchering scam.” A twist on the typical romance scam, the pig butchering scam is a long-term fraud in which victims are groomed over time to make investments using cryptocurrency, only to find that what they thought was a safe investment was a scam. It is estimated that this international scam involves thousands of victims across the country with losses into the billions of dollars.

The Investor Protection Unit received a complaint from a senior who had invested a significant chunk of his retirement savings in what turned out to be a pig butchering scam. It began when he was contacted online by an unknown person who urged him to purchase cryptocurrency to make investments. At the behest of the scammer, the victim initially invested approximately $275,000 of his retirement funds in cryptocurrency using a website, bybit.us, which tricks users into thinking it is legitimate by mimicking the website of a large cryptocurrency exchange, Bybit.com. Ultimately, the victim was told he had to pay significant fees before being able to withdraw his crypto; he took out a loan and paid the fees, but was still unable to make a withdrawal.

Working with Inca Digital, a data analytics company, the Unit traced the victim’s cryptocurrency to a number of different virtual wallets on the crypto exchange OKX.com. The Order prohibits the persons and entities affiliated with the wallets from withdrawing or otherwise moving assets owned by the victim. Although OKX, the exchange holding the wallets, is named in the Order, it is not accused of any wrongdoing; rather, in its role as the exchange, it is prohibited from permitting parties to move the fraudulently-obtained crypto, thus essentially freezing the accounts holding assets belonging to the Delaware victims.

“High-tech con artists have adapted traditional romance scam methods to take advantage of the hype surrounding cryptocurrency,” AG Jennings said. “The use of crypto to commit fraud, while increasingly common, presents new challenges for law enforcement. Today’s order takes a first step toward protecting Delaware investors from the pig butchering scam by freezing funds belonging to the victim.”

This is the second time the Unit has issued an order intended to freeze cryptocurrency lost by victims of the pig butchering scam. Unfortunately, the scam continues to proliferate, impacting victims in Delaware with increasing frequency.

The Investor Protection Unit offers the following tips for investors:

1. Be wary of someone you don’t know contacting you through any virtual platform looking to engage in frequent conversations.

2. Don’t get drawn into online conversations with unknown people who claim to have made a lot of money in cryptocurrency.

3. Remember that there is no such thing as a risk-free investment. If something sounds too good to be true, it probably is.

Deputy Attorney General Lindsay Nasshorn, Investor Protection Director Jillian Lazar, and Special Investigator Bill Boileau are leading this matter for the DOJ.

If you believe you are a victim of the pig butchering scam or other cryptocurrency investment scam, please file a complaint with the Investor Protection Unit, available at: https://attorneygeneral.delaware.gov/fraud/ipu/ipu-complaint-form/.

Guilty plea to murder in Dover killing; Change in state’s securities act leads to guilty plea to theft and identity theft

Beatriz Fana-Ruiz, the woman who set fire to the home where she lived leading to the deaths of 3 Wilmington firefighters has been sentenced to 30 years in prison. Deputy Attorneys General Barzilai Axelrod and John Downs secured the sentence for Fana-Ruiz, 30 years old. In September 2016, Fana-Ruiz, angry about her living situation and unhappy with her life, set a fire in the basement of the home where she was staying in the 1900 block of Lakeview Road in the Canby Park section of Wilmington. The fire quickly spread into the ceiling and weakened the floor joists. Lt. Christopher Leach, Senior Firefighter Ardythe Hope died as a result of injuries they sustained when the first floor collapsed causing them to fall into the burning basement. Firefighter Brad Speakman was also seriously injured when he also fell into the basement. Senior/Firefighter Jerry Fickes was killed as he tried to pull Lt. Leach from the fire and another portion of the ceiling collapsed onto him. In August 2019, Fana-Ruiz pleaded guilty to Murder Second Degree, Arson First Degree, and Assault First Degree. A Superior Court Judge sentenced Fana-Ruiz to 30 years in prison, followed by 2 ½ years probation. Additionally, the United States Immigration and Customs Enforcement (ICE) has filed a detainer against Fana-Ruiz, seeking her deportation to her home country of the Dominican Republic when released from custody in Delaware. Special Agent Lisa Herb, Bureau of Alcohol Tobacco and Firearms (ATF) provided essential investigative and expert analysis in determining the cause and origin of the fire and in interviewing Fana-Ruiz and obtaining her confession. Det. Joe Bucksner of the Wilmington Police Department was the lead investigator for the murder component of the case. DOJ paralegal Jaime Prater assisted with the prosecution, and social workers Kristin Fluharty-Emory, Donna Lindsay and Jenn Kutney worked with the victims and victim’s families to provide counsel and guidance through this case that lasted over 3 years.

Attorney General Kathleen Jennings made the following comment on the sentence for Fana-Ruiz: “This horrific tragedy reminds us of the danger Delaware’s first responders knowingly and willingly put themselves in every day to protect us. I thank our prosecution team and those who investigated the case, but most importantly I continue to extend my and DOJ’s sympathies to the families and friends of the firefighters who were killed and injured, as well as to the still grieving Wilmington Fire Department.”

A 20-year-old Camden man was sentenced to 15 years in prison after pleading guilty for his role in a Dover murder. In May 2018, Eugene Riley, along with another man, Ahmir Bailey, 21, of Lincoln, began arguing with 20-year-old Jameir Vann-Robinson, of Smyrna, as Vann-Robinson and a friend left a house party on Mitscher Road. The argument led to Riley and Bailey both firing several shots at Vann-Robinson, with Bailey fatally striking him in the back. Riley pleaded guilty to Murder Second Degree and was immediately sentenced by a Superior Court judge to 15 years in prison, followed by work release and probation. Bailey was convicted by a jury in October of 2018 of Murder First Degree, Attempted Murder First Degree, Possession of a Firearm During the Commission of a Felony, Shoplifting, and Conspiracy Third Degree. A Superior Court judge also found Bailey guilty of Possession of a Firearm by a Person Prohibited and Possession of Ammunition by a Person Prohibited. Bailey faces mandatory life in prison when sentenced in January of next year. Deputy Attorneys General Greg Babowal and Kevin Smith prosecuted the case. The investigation was led by Detective Schmid of the Dover Police Department.

Thanks to a change in the Delaware Securities Act designed to protect the state’s vulnerable populations, a Newark woman was prosecuted for stealing from her mother. For a period of a year and a half beginning in July 2017, Karen Warrington, 50, impersonated her mother and stole money from her mother’s investment accounts. Warrington pleaded guilty to Theft of $50,000 or More and 1 count of Identity Theft. Deputy Attorney General William Green prosecuted the case with assistance from special investigator Craig Weldon. Detective Christopher Rau of the New Castle Police Department was the chief investigating officer. This plea agreement is the first to result from a Report of Suspected Exploitation of a Senior or Vulnerable Adult submitted to the Department of Justice Investor Protection Unit by a financial institution pursuant to Section 73-307 of the Delaware Securities Act, which was amended in 2018 to make such reporting mandatory. A Superior Court judge will sentence Warrington in March 2020.

In the wake of widespread damage caused by Hurricane Florence, the Investor Protection Unit (IPU) of the Delaware Department of Justice cautions investors to watch out for opportunistic investment or charitable scams.

The Investor Protection Unit reminds investors to watch for red flags of hurricane-related scams, including unsolicited email, social media messages, crowdfunding pitches or telephone calls promoting investment pools or bonds to help storm victims, water-removal or purification technologies, electricity-generating devices and distressed real estate remediation programs. Scam artists may linger long after the storm has passed to prey on victims who anticipate receiving large lump-sum insurance settlements for damaged property and other losses.

“Natural disasters bring out the best and worst in people. While news stemming from Hurricane Florence has rightfully focused on the tireless efforts of first responders and neighbors helping neighbors, we know from experience that financial predators will seek to profit from the misfortune of others,” said Attorney General Matt Denn. “Unsolicited investment offers seeking to capitalize on the aftermath of Hurricane Florence should be approached with extreme caution.”
The IPU also cautions about fraudulent charitable solicitations that prey on the goodness of people seeking to help those in need.

“There will be fraudulent solicitations for charities in Florence’s wake,” Denn said, “and donors are reminded to do their research. As with any charitable donation, those who want to contribute to relief efforts should send contributions to organizations that are registered properly with state authorities and with an established track record of getting donations to victims.”

The Investor Protection Unit offered three quick tips to help investors avoid disaster-related scams:

• Delete unsolicited emails or social media messages and hang up on aggressive cold callers promoting hurricane-related investments, especially those from small companies touting unproven or new technologies or products.
• Use common sense. Claims of guaranteed returns or low/no investment risk are classic red flags. Every investment involves some degree of risk.
• Do your homework. Contact your state regulator to check that both the seller and investment are licensed and registered. If not, they may be operating illegally. Contact the Investor Protection Unit at (302) 577-8424, or by email.

With cryptocurrencies attracting recent headlines, the Investor Protection Unit of the Delaware Department of Justice is urging Delaware investors to be cautious about investments involving cryptocurrencies.

“Investors should make certain they understand the risks associated with investments in cryptocurrencies and financial products involving cryptocurrency before they invest,” said Director of Investor Protection Greg Strong.

Cryptocurrencies are a medium of exchange that are created and stored electronically in the blockchain, a distributed public database that keeps a permanent record of digital transactions. Current common cryptocurrencies include Bitcoin, Ethereum and Litecoin. Unlike traditional currency, these alternatives have no physical form and typically are not backed by tangible assets. They are not insured or controlled by a central bank or other governmental authority, cannot always be exchanged for other commodities, and are subject to little or no regulation.

A survey of state and provincial securities regulators by the North American Securities Administrators Association (NASAA), of which the Investor Protection Unit is a member, shows 94 percent believe there is a “high risk of fraud” involving cryptocurrencies. Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection.

“The rapid price swings in cryptocurrency-related investments may tempt investors to invest in cryptocurrency without first becoming knowledgeable about the risks involved,” Greg Strong said. “Cryptocurrencies and investments tied to them are extremely volatile and highly speculative investments. Combined with a high risk of fraud, cryptocurrencies are high-risk investments.”

Last month, NASAA identified Initial Coin Offerings (ICOs) and cryptocurrency-related investment products as emerging investor threats for 2018. Unlike an Initial Public Offering (IPO) when a company sells stocks in order to raise capital, an ICO sells “tokens” in order to fund a project, usually related to the blockchain. The token likely has no value at the time of purchase. Some tokens constitute, or may be exchangeable for, a new cryptocurrency to be launched by the project, while others entitle investors to a discount, or early rights to a product or service proposed to be offered by the project.

NASAA offers a short animated video to help investors understand the risks associated with ICOs and cryptocurrencies. NASAA and its members first alerted investors of the risks associated with cryptocurrencies in 2014.

Common Cryptocurrency Concerns

Some common concerns investors should consider before investing in any offering containing cryptocurrency include:

• Cryptocurrency is subject to minimal regulatory oversight, susceptible to cybersecurity breaches or hacks, and there may be no recourse should the cryptocurrency disappear.
• Cryptocurrency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.
• The high volatility of cryptocurrency investments makes them unsuitable for most investors, especially those investing for long-term goals or retirement.
• Investors in cryptocurrency are highly reliant upon unregulated companies, including some that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.
• Investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties, to protect purchased cryptocurrencies from theft.

Common Red Flags of Fraud

The Investor Protection Unit also reminds investors to keep watch for these common red flags of investment fraud:

• “Guaranteed” high investment returns. There is no such thing as guaranteed investment returns, and there is no guarantee that the cryptocurrency will increase in value. Be wary of anyone who promises a high rate of return with little or no risk.
• Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme.  Cryptocurrency investment opportunities are promoted aggressively through social media. Be very wary of an unsolicited communication—meaning you didn’t ask for it and don’t know the sender—about an investment opportunity.
• Sounds too good to be true. If the project sounds too good to be true, it probably is. Watch out for exaggerated claims about the project’s future success.
• Pressure to buy immediately. Take time to research an investment opportunity before handing over your money. Watch out for pressure to act fast or “get in on the ground floor” of a new tech trend.
• Unlicensed sellers. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. The Investor Protection Unit of the Delaware Department of Justice can help investors research the background of those selling or advising the purchase of an investment. The Investor Protection Unit can be reached at 302-577-8424 or through our website at https://attorneygeneral.delaware.gov/fraud/ipu/.

Promissory notes, real estate investments, and Ponzi schemes
top the list

The Delaware Department of Justice released its annual list of top investor threats and reminded Delawareans to use caution when approached with any unsolicited investment opportunities.
“All investments involve a degree of risk,” said Attorney General Matt Denn. “Investors can help protect themselves by taking time to research both the investment product and the person selling it. It’s best to learn before you get burned.”

The top threats were determined by surveying members of the North American Securities Administrators Association, of which the Delaware Department of Justice is a member, to identify the most frequently identified source of current investor complaints or investigations.

The following were cited most often:

PROMISSORY NOTES: A promissory note is a written promise to pay (or repay) a specified sum of money at a stated time in the future or upon demand. Companies may sell promissory notes to raise capital, and usually offer them only to sophisticated or institutional investors. Promissory notes from legitimate issuers can provide reasonable investment returns at an acceptable level of risk, although state securities regulators have identified an unfortunately high number of promissory note frauds. Investors should be cautious about promissory notes with durations of nine months or less, as these notes generally do not require federal or state securities registration.

REAL ESTATE INVESTMENTS: The promise of earning quick money through investments related to real estate continues to lure investors. Investors should be cautious about real estate investment seminars, especially those marketing real estate investments aggressively as an alternative to more traditional retirement planning strategies involving stocks, bonds and mutual funds. Two of the most popular current investment pitches at these seminars involve so-called “hard-money lending” and “property flipping.” Hard-money lending is a term used to refer to real estate investments financed through means other than traditional bank borrowing. Property flipping is the practice of purchasing distressed real estate, refurbishing it, and then immediately re-selling it in hopes of earning a profit. Property flipping financed through borrowed funds or outside investments can be done entirely lawfully, but it can also be a source for fraud.

PONZI/PYRAMID SCHEMES: A Ponzi scheme is a ploy wherein earlier investors are repaid through the funds deposited by subsequent investors. In a Ponzi scheme, the underlying investment claims are usually entirely fictional; very few, if any, actual physical assets or investments generally exist. As the number of total investors grows and the supply of potential new investors dwindles, there is not enough money to pay off promised returns and cover investors who try to cash out. Similarly, a pyramid scheme is a fraudulent multi-level marketing strategy whereby investors earn potential returns by recruiting more and more other investors. Multi-level marketing strategies are not intrinsically fraudulent, and there are many legitimate multi-level marketing companies offering various consumer products and services. What makes a multi-level marketing strategy into a fraudulent pyramid scheme is the lack of a genuine underlying investment enterprise or product upon which the strategy can hope to be sustained.

OIL & GAS INVESTMENTS: Many oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations. Because these ventures are so speculative, the potential for fraud is rife. Scammers may misrepresent the likelihood that an oil or gas well will be successful – or may not even ultimately drill a well at all. Fraudulent oil and gas schemes frequently take the form of Ponzi schemes, with investors’ funds being “recycled” to keep the scheme going.

AFFINITY FRAUD: In an affinity fraud, a con artist uses some sort of connection with the victim as the basis for the fraud. Affinity frauds may involve people who attend the same church, belong to the same club or association, or share a common hobby. The con artist knows it is often easier for victims to trust someone who seems to be like them. Once a victim realizes that he or she has been scammed, too often the response is not to notify the authorities but instead to try (usually unsuccessfully) to solve problems within the group. Affinity fraud can not only be financially devastating to the victims, but often has the perverse effect of causing victims to lose trust in the group or affiliation that was previously a source of comfort or support. The psychological damage can be just as harmful as the financial damage.

VARIABLE ANNUITY SALES PRACTICES: Variable annuities are hybrid investments containing both securities and insurance features. While these products are entirely legitimate, they are not suitable for all investors. Senior investors, in particular, should beware of the high surrender fees and steep sales commissions agents often earn when they move investors into variable annuities. Investors should be especially wary of any broker who wants to sell a variable annuity to hold inside a qualified retirement plan, such as a 401(k) plan or Individual Retirement Account (IRA), as these types of retirement account will already benefit from tax deferment.

The Investor Protection Unit of the Delaware Department of Justice offers a wealth of free investor education materials and can help investors research the background of those selling or advising the purchase of an investment. The Investor Protection Unit can be reached at (302) 577-8424 or through its website .