State regulators warn investors about cryptocurrency dangers

Securities and Exchange Commission members also reiterate their concerns about virtual money

Jan 4, 2018 @ 2:12 pm

By Mark Schoeff Jr.

State securities regulators warned investors Thursday to be careful when putting their real money into virtual money.

The North American Securities Administrators Association released a statement outlining the weaknesses of cryptocurrencies, such as bitcoin, as well as futures contracts and other financial products based on them.

For instance, NASAA said cryptocurrencies have little regulatory oversight, are subject to hacks, are not insured by the Federal Deposit Insurance Corporation, are highly volatile and are created by unregulated companies.

(Editorial: Cryptocurrency frenzy poses a challenge to advisers)

"Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies," Joseph Borg, NASAA president and director of the Alabama Securities Commission, said in the statement. "The recent wild price fluctuations and speculation in cryptocurrency-related investments can easily tempt unsuspecting investors to rush into an investment they may not fully understand. Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility. Combined with high risk of fraud, investing in cryptocurrencies is not for the faint of heart."

The NASAA warning was immediately endorsed by Securities and Exchange Commission Chairman Jay Clayton and two other members, Kara Stein and Michael Piwowar.

"NASAA's release is a timely and thoughtful reminder to Main Street investors to exercise caution," the SEC officials said in a statement. "The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in recovery of your investment."

The SEC statement follows a Dec. 11 statement by Mr. Clayton in which he said there is "substantially less investor protection [in cryptocurrency markets] than in our traditional securities markets."

The Commodity Futures Trading Commission issued its own cautionary statement about virtual currencies Thursday.

Neither the SEC nor state regulators have promulgated a cryptocurrency rule. But last month, NASAA called initial coin offerings an emerging investor threat in 2018, while the SEC put out five investor bulletins and other statements on virtual currencies in 2017.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

When can advisers expect an SEC fiduciary rule proposal and other regs this year?

Managing editor Christina Nelson and senior reporter Mark Schoeff Jr. discuss regulations of consequence to financial advisers in 2018, and their likely timing.

Recommended Video

Path to growth

Latest news & opinion

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

Legislation would make it harder for investors to sue mutual funds over high fees

A plaintiff would have to state in their initial complaint why fiduciary duty was breached, and then prove the violation with 'clear and convincing evidence.'

Relying on trainees, Merrill Lynch boosts adviser headcount in 2017

Questions remain about long-term effectiveness of wirehouse's move away from recruiting experienced brokers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print