With advanced technology blurring the line between physical and digital worlds, scam artists are already busily using the metaverse to bring to market a host of new investment schemes, state securities regulators warned in a new investor advisory (https://www.nasaa.org/65299/informed-investor-advisory-metaverse/) today. 

The alert from the North American Securities Administrators Association (NASAA)  cautioned investors to protect themselves from fraudulent offerings in the metaverse, an unregulated online “world” that provides users the ability to participate in immersive experiences by using virtual or augmented reality technologies.

The advisory warns that the lack of regulation combined with the ability to operate from anywhere in the world, makes it easy for fraudsters to hide their financial schemes. Scam artists have already created offerings for virtual real estate, nonfungible tokens (NFTs) and other businesses, NASAA said. 

“Our experience with so-called investment opportunities found in the metaverse, is that we see the same old financial scams simply dressed in new clothes and offered to investors in the metaverse. Investors need to be wary of any investment that is promising unrealistic returns with minimal risk,” NASAA President and Maryland Securities Commissioner Melanie Senter Lubin said.

Fraudulent metaverse schemes are growing by the day. Real-world metaverse scams that regulators are seeing include illegal stock promotions, pump-and-dump campaigns and Ponzi schemes offering stock in metaverse-focused companies or technologies. “Scams inside metaverse virtual worlds can be similar to real-world scams, but they are likely to include a virtual component such as crypto assets or virtual real estate,” NASAA added.

In May 2022, five state securities regulators filed enforcement actions against the Flamingo Casino Club for allegedly promoting fraudulent metaverse investments to U. S. residents from headquarters in Russia. 

The scheme involved offering NFTs that conveyed ownership interest in a metaverse casino. The sales pitch? Investors would profit when patrons, acting as avatars, paid to play virtual craps, blackjack and other games. 

Regulators from Alabama, Kentucky, New Jersey, Texas and Wisconsin filed charges against the club for allegedly fabricating a partnership with the actual Flamingo Casino in Las Vegas in addition to fabricating digital land deals with rapper and TV personality Snoop Dogg. 

“It is important to do research before participating in any investment opportunity to learn if it is a legitimate offering and whether it is registered with one or more securities regulators,” Diane Young-Spitzer, Massachusetts Securities Division Director and General Counsel and a Nasaa board member said.

The NASAA alert provided the following tips to help investors ferret out telltale signs of possible investment fraud in the metaverse:

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