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SACRAMENTO The California Department of Financial Protection and Innovation (DFPI) announced today it has issued desist and refrain orders against five entities to stop fraudulent investment schemes tied to artificial intelligence (AI).

Todays enforcement actions continue the DFPIs crack down on investor fraud. Scammers are taking advantage of the recent buzz around artificial intelligence to entice investors into bogus schemes, said DFPI Commissioner Clothilde Hewlett. We will continue our efforts to protect California consumers and investors by going after these unscrupulous actors.

The orders find that the named entities and individuals violated California securities laws by offering and selling unqualified securities and making material misrepresentations and omissions to investors. The entities solicited funds from investors by claiming to offer high yield investment programs (HYIP) that generate incredible returns by using AI to trade crypto assets. As part of their solicitations, they used multi-level marketing schemes that reward investors for recruiting new investors.

The subjects of todays desist and refrain orders are the following entities and individuals:

The Anatomy of the Scams

Taking advantage of the hype around AI, these entities claimed to use AI to conduct the purported crypto trading. The pitch was simple: investors were told that if they invested funds, these entities would use their knowledge, skill, experience, and AI to trade crypto assets and generate incredible profits for investors. In each case, these claims are false.

Each of these entities went to great lengths to appear as if they were legitimate businesses. They created professional websites, maintained social media accounts, and were promoted on social media by influencers and investors that shared stories of the money they were supposedly making.

For investors, these schemes may seem as if they are operating as promised for a certain amount of time. For weeks, months, or even years, investors see their account balances steadily increase. In the early stages, HYIPs will process investors withdrawal requests to gain investors trust and encourage them to recruit others. However, a time will come when the scheme stops processing withdrawals and then the website goes dark, leaving investors without a way to access their funds. By then its too late and the scammers have disappeared with investors money.

DFPIs Crackdown on High Yield Investment Programs

These orders continue the DFPIs crackdown on HYIPs. These programs use social media and influencers to quickly raise hype about the promised returns and low risk of the investment, then the operators quickly disappear leaving investors with no recourse to retrieve their money. Learn more about HYIPs:

The DFPI expects any person offering securities, lending, or other financial services in California to comply with our financial laws. Investors may file a complaint directly with the DFPI if they suspect a company of using unlawful, unfair, deceptive, or abusive practice online (dfpi.ca.gov/file-a-complaint) or call toll-free at (866) 275-2677.

About DFPI

The DFPI protects consumers, regulates financial services, and fosters responsible innovation. The DFPI protects consumers by establishing and enforcing financial regulations that promote transparency and accountability. We empower all Californians to access a fair and equitable financial marketplace through education and preventing potential risks, fraud, and abuse. Learn more atdfpi.ca.gov.

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