Financial institutions

Financial Institutions Department: Five States File Enforcement Actions to Stop Russian Scammers from Perpetrating Metaverse Investment Fraud

May 11, 2022 – Five national securities regulators have simultaneously filed lawsuits against a Russian organization that allegedly promoted fraudulent investments in the metaverse to residents of the United States. The actions accuse Flamingo Casino Club of carrying out the scam by offering non-fungible tokens, commonly known as NFTs, allegedly linked to a metaverse casino. The appeals were filed by the Alabama Securities Commission, Kentucky Department of Financial Institutions, New Jersey Bureau of Securities, Texas State Securities Board and Wisconsin Department of Financial Institutions.

The scheme is rooted in the metaverse – a term that generally refers to one or more interconnected virtual worlds that promote interactivity, entertainment, and commerce. Recent advances in technology allow users to access these virtual worlds through digital representations of themselves, often called avatars, and to socialize, play, shop, or even work. Metaverses are becoming increasingly popular as companies continue to invest in augmented and virtual realities that increasingly intersect with movies, video games, and popular culture.

Although metaverses are attracting widespread public interest, malicious actors are now taking advantage of the widespread public interest to perpetrate fraudulent investment schemes. Alabama, Kentucky, New Jersey, Wisconsin and Texas filed the actions today to proactively stop this type of fraud and protect the public from irreparable harm.

All five state regulators are unanimous in strongly cautioning the public: “While advancements in technology are creating exciting new opportunities for many businesses, scammers are already trying to capitalize on the hype associated with metaverses and NFTs. They develop high-tech schemes to create a facade of legitimacy and deceive victims – while playing on their emotions by falsely promising lucrative profitability, guaranteed income, financial security and the once-in-a-lifetime opportunity to become metaverse millionaires. As we uncover a growing number of suspicious solicitations for unregistered titles related to the Metaverse, today’s action is just the tip of the iceberg.

The five state actions against Flamingo Casino Club highlight the pitfalls associated with these virtual promotions. For example, Flamingo Casino Club allegedly began operating from Russia in March 2022. Since then, it has been fraudulently soliciting NFTs that claim to convey ownership of a metaverse casino and the right to share profits from the metaverse casino. Investors allegedly profit when customers, acting as avatars, pay to play virtual craps, blackjack, roulette and other games.

Flamingo Casino Club has reportedly touted the validity of its operation by claiming to develop its metaverse casino through a partnership with the Flamingo Las Vegas, an established casino operating in Nevada. According to orders, however, this representation is simply wrong – Flamingo Casino Club simply has no relationship or affiliation with Flamingo Las Vegas. The state actions also accused Flamingo Casino Club of deception and fraud by claiming to be in partnership with Yahoo and MarketWatch.

State regulators also recognize that online scammers often take steps to remain anonymous and hide their true identities, which often allows them to “go dark” and disappear when their schemes fall apart. Today’s orders accuse Flamingo Casino Club of implementing similar tactics. Not only does it allegedly conceal its connection to Russia, but Flamingo Casino Club also uses a fake office address, providing an out-of-service phone number, concealing its real physical location, and concealing important information about its directors. Flamingo Casino Club is also accused of withholding other important information, such as its use of funds and material information about its negotiations for the purchase of land – which it claims to be buying from Snoop Dogg.

Instead of hiring financial professionals to market its NFTs, Flamingo Casino Club would solicit investors via his website and various social media platforms, including a Twitter usernamea telegram channela PageInstagram and one Discord Server. It also reportedly relies on anonymous social media influencers to recruit potential investors. For example, the order alleges that an anonymous influencer known as tommy published a video on youtube touting the profitability of the metaverse investment scheme. According to the order, Tommy is not a financial adviser and is not authorized to act as an agent for Flamingo Casino Club – yet his video covering securitized NFTs has been viewed almost 40,000 times. Another unregistered anonymous influencer known as Flozin published a video on youtube touting securitized NFTs – and his video has already been viewed over 41,000 times.

The five state regulators provided guidance to investors considering securities issued by online metaverse investment promotions: “The same rules that apply to investments in the physical world continue to apply to investments in the worlds virtual. Nicknames do not replace real names. Qualifications and experience matter. There are no virtual risks, just real risks of losing real money in a real scam. The best defense is not rooted in technical knowledge but in traditional due diligence. Investors should set aside their emotions, investigate red flags of fraud, and objectively review all material information before buying securities. »

Joseph Borg is the director of the Alabama Securities Commission, Marni Gibson is the director of the Securities Division of the Kentucky Department of Financial Institutions, Attorney General Matthew J. Platkin administers the New Jersey Bureau of Securities, Travis Iles is the Texas Securities Board State Commissioner and Leslie M. Van Buskirk is the Division of Securities Administrator of the Wisconsin Department of Financial Institutions. Agencies can be contacted by the following means:

Alabama Securities Commission: (Website: www.asc.alabama.gov, contact Nick Vonderau by phone at 334-353-7697 or by email at [email protected])

Kentucky Department of Financial Institutions: (Website: kfi.ky.gov, contact Marni Gibson by phone at 502-573-3390 or by email at [email protected])

New Jersey Securities Bureau: (Website: www.njsecurities.gov, contact Gema de las Heras by phone at 609-292-4791 or by email at [email protected])

Texas State Securities Commission: (Website: www.ssb.texas.gov, contact Joseph Rotunda by phone at 512-689-4623 or by email at [email protected])

Wisconsin Department of Financial Institutions: (Website: www.wdfi.org, contact Robin Jacobs or Mike Gavigan by phone at 608-266-2139 or by email at [email protected])