SEC Alert on Bitcoin: You May Be Exposed Where You Least Expect It

The Securities and Exchange Commission’s (SEC) Investor.gov website has issued an “Investor Alert: Bitcoin and Other Virtual Currency-Related Investments”. The

The Securities and Exchange Commission’s (SEC) Investor.gov website has issued an “Investor Alert: Bitcoin and Other Virtual Currency-Related Investments”.

The site is run by the SEC’s Office of Investor Education and Advocacy. Their stated aim is to help investors invest wisely and avoid fraud. One can view them as the more public-facing side of the SEC. Their activities include educating investors, reviewing SEC policy from the perspective of an actual investor by, for example, conducting surveys, and even contacting brokers or advisers on behalf of investors accusing them of wrongdoing.

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Naturally then, their warning drills down deep into the risks of Bitcoin purely from an investment perspective. It does not delve into the other dangers discussed by many other bodies, such as criminal activity. Putting itself in the shoes of an investor, the alert is best summarized as follows:

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“Potential investors can be easily enticed with the promise of high returns in a new investment space and also may be less skeptical when assessing something novel, new and cutting-edge.”

The warning covers virtual currency’s volatility, susceptibility to fraud, Ponzi schemes and general theft, again much to the same degree as discussed elsewhere. It takes it a step further by warning about the risks of even conventional investment vehicles which may have exposure to Bitcoin. Several true stories are cited, some of which are not commonly known and certainly wouldn’t have been contemplated by an investor looking to get the scoop on Bitcoin.

In one such scheme, a cease and desist order was issued against a Texas oil and gas exploration company, Balanced Energy LLC, which claimed to be the first such company accepting bitcoins from investors. It is alleged to have intentionally hidden from investors “the nature of the risks associated with the use of Bitcoin to purchase working interests.” They had solicited investment at the Texas Bitcoin Conference in early March, where Charlie Shrem addressed attendees remotely.

Another case involved the SEC suspending trading in Imogo Mobile Technologies as questions arose regarding the accuracy of its publicly disseminated information. Shortly before the suspension, the company said it was developing a mobile Bitcoin trading platform, which almost on cue, resulted in wild trading of the company’s shares.

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