Tennessee Department of Commerce & Insurance warns of fraud in the “metaverse”

Fraudsters hide schemes in the web

Nashville The Tennessee Department of Commerce & Insurance’s (“TDCI”) Division of Securities is joining the North American Securities Administrators Association (“NASAA”) to share an Informed Investor Advisory cautioning investors to protect themselves from investment scams and frauds offered in the unregulated metaverse, the online virtual “world” that provides users with immersive experiences through virtual or augmented reality technologies.

The metaverse may offer numerous potential investment opportunities, including virtual real estate, nonfungible tokens (“NFT”) and other businesses. But the advisory warns that the lack of regulation in the metaverse, combined with the ability to operate from anywhere in the world, make it easy for fraudsters to hide their financial schemes. In addition, security lapses on some developing platforms and the ability to build fake metaverse experiences can lead to hacks, fraud or the theft of users’ funds.

“All investments come with some risk, and no one can be guaranteed against loss when it comes to an investment,” said TDCI Commissioner Carter Lawrence. “While the metaverse promises the benefits of new technology, scammers will use it to dress up the same old financial scams and prey on investors in the metaverse. Tennesseans need to be wary of any investment that is promising unrealistic returns with minimal risk.”

The advisory explains the risk of metaverse-focused investment scams and frauds, and how investors can protect themselves if they are considering investing in this emerging realm.

TDCI and NASAA are providing the following tips to help investors identify common telltale signs of possible investment fraud in the metaverse:

  • Understand the risks and make sure you are comfortable with them, including the possibility that you might lose your entire investment.
  • Verify that the person or entity offering the investment is registered with one or more securities regulators. Visit TDCI’s Securities division online here.
  • Avoid discussing investments or sharing personal or account information with avatars, or digital representations of users that can take on any appearance or personal attribute. Fraudsters may try to leverage shared interests, ideas and goals to build trust and convince investors to invest in phony investment schemes.
  • Steer clear of metaverse crypto or NFT investment offers and avoid investment advice in the metaverse.
  • Be wary of misinformation including fake news and online celebrity gossip as scammers write fake online articles and social media posts that create buzz by falsely stating a celebrity or public figure is involved in technology investment.

“Investors should remember that the rules that apply to investments in the physical world also apply to investments in virtual worlds,” said TDCI Assistant Commissioner for Securities Elizabeth Bowling. “When considering any investment, investors should watch for signs of fraud and objectively consider all the information available before making the investment.”

Before making financial decisions about how to invest your money, investors can contact TDCI’s Securities Team by phone at (615) 741-2947 or visit us online for more details.

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