State Securities Regulators Warn of Real Scams in Virtual Worlds

Investing in virtual worlds, also known as the metaverse, is probably not recommended by most registered investment advisors. While there are opportunities in this nebulous digital frontier, securities regulators warn that scammers, hackers, and outright thieves abound.

As consumers explore the metaverse and evaluate the investments they'll find there, including nonfungible tokens and virtual real estate offerings, the North American Securities Administrators Association issued an investor alert warning them to proceed withcaution.

In a statement, Nasaa President Melanie Lubin cautioned that conventional wisdom continues to apply in the metaverse, which states that "every investment involves risk, and no investment can be guaranteed against loss."

In our experience, socalled investment opportunities in the metaverse are just the same old financial scams dressed up in new clothes and offered to investors. "Investors should be wary of investments that promise unrealistic returns with minimal risk."

According to Nasaa, many futurists see the metaverse as the next major phase of the internet, and top companies are betting big on it. The investor update could be a conversation starter with clients who might not be metaverse residents but whose children may be. Facebook, after all, reorganized under the Meta brand.

"It is inevitable that some will exploit the hype around any innovation or new technology to profit illegally from others. When considering a metaverse investment pitch, it is imperative to separate fact from fiction." "Nasaa says in its investor advisory.

According to Nasaa's bulletin, the metaverse is largely unregulated, highly distributed, and new - the virtual neighbors your avatar encounters may be across the globe. As state securities officials advise, potential investors should research any potential investment opportunity to understand the risks and be prepared to lose everything in the worst-case scenario.

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They also observed that many unscrupulous actors—those without any registration with any securities authority—are preying upon metaverse participants, making it even more important to vet those pitching investment opportunities to you.

"The novelty of metaverse investing is that it occurs both in the real world and virtual spaces," Nasaa added. "Metaverse companies are raising funds from real-world investors, while avatars invest in virtual worlds within the metaverse. Real assets, however, can be put at risk and transferred in both cases."

According to Nasaa, some traditional scams with a metaverse flavor, such as fraudulent stock promotions, Ponzi schemes, and pump-anddump schemes promoting metaverse investments, as well as frauds that take place exclusively within the virtual world, commonly involve cryptos or virtual assets.

The Flamingo Casino Club, which has alleged Russian ties, was sued in May by five state securities agencies for selling fraudulent metaverse investments via an NFT offering. As well as financial scams, Nasaa warns that virtual worlds may pose a security threat. The headlines tend to keep hackers interested in new corners of the internet. Once they see a mass influx of potentially unsophisticated users in a new corner, they will also attack there. Companies operating in the space have not all committed the resources to tighten security to protect users' personal and financial information.

A participant's role in protecting themselves is also important. Before transferring any money, would-be investors are advised to contact a real-world representative of the entity offering the investment before engaging in investment discussions with avatars or sharing any personal information in the metaverse. Having trouble finding them in the real world is a red flag, as often will happen with scammers. —Crypto Weekly