Conduct Risks Consumers, investors, and businesses using or investing in crypto-assets are exposed to a variety of conduct risks in the crypto-asset ecosystem. Investing is ofen at the core of crypto-asset activity; accordingly, the conduct risks below largely focus on risks associated with investing activities. Crypto-assets and markets that operate out of compliance with applicable laws and regulations, or are unregulated, can breed fraud, abusive market practices, and disclosure gaps.107 Certain practices in the crypto-asset ecosystem have resulted in financial harm to consumers, investors, and businesses; unfair and inequitable outcomes; and damage to the integrity of the market. Some notable conduct risks are described below, but risks are likely to continue to evolve as crypto-asset markets change and therefore require vigilant and robust regulatory supervision and oversight.108

Fraud, Thef, and Mismanagement As the crypto-asset market has grown, so has the volume of fraud, scams, and thef in the ecosystem; indeed, unlawful transaction activity globally reached an all-time high in value in 2021.109 Criminals ofen take advantage of innovations and new technologies to perpetrate fraudulent activities, including promises or guarantees of high returns. Moreover, the crypto-asset ecosystem has unique features that make it an increasingly attractive target for unlawful activity, including the ongoing evolution of the underlying technology, pseudonymity, irreversibility of transactions, and the current asymmetry of information between issuers of crypto-assets and consumers and investors.

Multiple U.S. government agencies track and publish crypto-asset related complaints reported by the public, which have indicated a sharp increase in losses related to crypto-assets. They have also issued warnings related to their findings, including noting a material increase in crypto-assets as a payment method for all types of scams, including investment scams, romance scams, and business and government impersonation scams.110 The Federal Bureau of Investigations Internet Crime Complaint Center (IC3) has warned against the scams leveraging cryptocurrency ATMs,111 cryptocurrency customer support impersonators, as well as romance scams that involve investment opportunities. In 2021, the IC3 received 34,202 107 iosCo, supra note 21, at 36. 108

Id., at 5. 109 At the same time, transaction activity associated with unlawful applications reached an all-time low as a share of all crypto-asset activity, reflecting the growth in overall transaction volume. See Chainalysis, the 2022 CryPto CriMe rePort 3-4 (2022), com/2022-Crypto-Crime-Report.html. 110 For more information on crypto-asset scams, see ftC, Reports show scammers cashing in on crypto craze, (Jun. 2022), www.fc.gov/