State regulators warn investors about cryptocurrency dangers

Securities and Exchange Commission members also reiterate their concerns about virtual money.
JAN 04, 2018

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.

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