Office of New York Attorney General Letitia James ("OAG") issued investor and industry alerts warning of the "extreme" risk associated with investment in virtual currencies.
In an investor alert, the OAG explained that virtual currency trading differs from traditional stock, bond and asset trading in that:
- as a result of the ease of creating and spreading a virtual currency, the value of a virtual currency can be highly unpredictable and swing without any impact on the real economy;
- virtual currencies can be difficult to cash out, as they are not traded on traditional exchanges;
- the financial interests of virtual currency trading platform operators may conflict with an investor's interests because many operators of such platforms are heavily invested in cryptocurrencies and trade without oversight on their own platform;
- many virtual currency trading platforms operate with few regulations concerning insider trading and other protections that are available to traditional stock exchange traders; and
- many virtual currency trading platforms operate from locations across the world that may not be accessible to American law enforcement, leaving victims of fraud on such platforms with no recourse in the United States.
Additionally, the OAG outlined the red flags of virtual currency investment frauds, including (i) guarantees of unrealistic returns, (ii) aggressive offerings that are "exclusive" or require immediate investment to avoid "los[ing] out" on an opportunity, (iii) the person selling the investment using terminology that is confusing or difficult to follow, (iv) the person selling the investment requesting that funds be transferred directly to their account instead of a verifiable business address and (v) a broker or advisor without a verifiable physical address.
In an industry alert, the OAG reminded members of the virtual currency industry that individuals or entities dealing in cryptocurrencies may be required to register with the OAG. The OAG warned that failure to register as a commodity broker-dealer, salesperson or investment advisor will be prosecuted under the Martin Act.
- NYAG Press Release: Attorney General James Warns Investors about "Extreme Risk" when Investing in Cryptocurrency, Issues Additional Warning to Those Facilitating Trading of Virtual Currencies
- NYAG Industry Alert: Registration of Commodity Brokers-Dealers, Salespersons and Investment Advisors Doing Business Relating to Virtual or "Crypto" Currency
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