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The increasing demand for artificial intelligence (AI) in recent weeks has seen a surge in technology adoption as the world of AI continues to evolve. However, a Californian regulator has alleged that several firms are using AI-based crypto trading to commit fraud by using the technology to impersonate CEOs of digital asset exchanges.

California’s Regulator Issues New Orders

The California Department of Financial Protection and Innovation (DFPI) recently issued a cease and desist order against five firms using AI to trade cryptocurrency. The five companies include Coin Bot, Harvest Keeper, QuantFund, Visque Capital, Maxpread Technologies, and its founder Jan Gregory Cerato.

According to the Californian regulator, two companies allegedly used AI to create fake personalities for their CEOs. Maxpread, in particular, has reportedly used the AI-created avatar “Michael Vanes” as its chief executive officer to promote its products.

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Apart from this, Harvest Keeper, a purported crypto trading platform, has allegedly hired Markus Peters, an actor, to act as its CEO. According to DFPI, the company’s description of Peters shows he is the “leader” and “brainbox” of ideas.

Moreover, the DFPI noted that the entities only take advantage of the rising hype within the AI ecosystem to lure investors into their fraudulent activities. The firms leverage AI to promise huge returns by claiming the technology will trade crypto assets for investors.

Meanwhile, they are using multi-level marketing schemes to reward investors who recruit others. The pitch used by the entities is simple, according to the DFPI. Investors were told to invest their funds while the companies used their expertise and technology to generate high profits.

The DFPI further noted that the firms go to the extra length of creating professional-looking websites, hiring influencers, and having professionally managed social media accounts to assure unsuspecting users of their legitimacy. Explaining further, the regulator used Visque Capital as an example.

The firm offers a range of investment products, with the most expensive claiming to provide investors with a return of close to 3% daily. The plan is based on an initial investment of $50,000 with a purported return of $270,000 upon attaining 180 days.

According to the DFPI, the scam initially worked fine with early withdrawals to show its legitimacy. However, withdrawals would become an issue later on. Then, when the website eventually goes down, it leaves investors stranded with no way to access their money.

Using Technology To Defraud People

Speaking of Maxpread’s purported founder, the regulator asserts that Jan Gregory, the company’s former chief marketing officer was the CEO and not what was depicted on his avatar. A DFPI representative, Elizabeth Smith, stated that the agency’s enforcement unit had tracked the avatar, linking it to the online 3D modeling platform,

In one of the firm’s videos, the avatar acting as the CEO is a middle-aged man with a synthetic voice in the firm’s promotional video. On the other hand, Harvest Keeper used an unrelated individual to perform the role of its CEO.

Nevertheless, the DFPI commissioner, Clothilde Hewlett, noted in a statement that scammers are using the buzz surrounding AI to lure investors into bogus crypto investment schemes. The commissioner added that the agency has become more determined and double-down on its aggressive approach against crypto scammers to safeguard Californians and their investments.

Meanwhile, both entities have yet to release a statement regarding the latest accusations by the DFPI. However, observers suggest that these recent developments calls for more proactive measures against the misuse of AI in the digital finance ecosystem.

Still, analysts argue that with scammers now using AI to manipulate data and impersonate other personalities, regulators will have difficulty spotting their operations. The analysts added that regulators must ramp up their oversight functions, and investors should do their due diligence before investing in a crypto startup.

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George Ward

By George Ward

George Ward is a crypto journalist and market analyst at Herald Sheets, known for his engaging articles on the latest digital currency trends. With a background in finance and journalism, he presents complex topics accessibly. George holds a degree in Business and Finance from the University of Cambridge.