On September 3, Connecticut Attorney General (AG) William Tong issued a consumer alert warning residents about the security and financial risks from “unregulated offshore” decentralized finance (DeFi) cryptocurrency exchanges. The AG stated that these platforms operate outside state and federal regulatory frameworks, bypass critical consumer protections and expose retail investors to substantial financial losses. The AG asserted that the relative lack of oversight could enable illicit activities such as money laundering and sanctions evasion.

The alert cited several practices that may expose investors to significant risk, including using virtual private networks to bypass geographic restrictions meant to exclude U.S. users and enticing customers with purportedly misleading contracts that are in fact predatory and risky investments, leveraged up to 250 times an investor’s position, which the AG said can lead to entire investments being wiped out by even small market fluctuations. The AG also highlighted the practice of offering “perpetual contracts” tied to foreign currencies, global commodities, and U.S. listed companies, when investors are in fact placing leveraged bets on synthetic prices. The alert also noted that some platforms are controlled by centralized operators that can alter prices, remove assets from trading, and pause customer withdrawals unilaterally.