Article By John Wasik
Why have digital coins become the modern-day fool’s gold?
The answer is pretty clear to me. You don’t need to rush off to California or the Klondike and stake a claim. All you have to do is sit at your computer and hope for the riches to stream in.
Although some cryptos like Ethereum are entirely legitimate, many digital coin offerings (ICOs) are not and have ensnared thousands of ill-informed investors. (Ethereum is a platform for blockchain software).
A recent wave of coin offerings has attracted the attention of state securities regulators, who began a “Cryptosweep” across North America earlier this year. The state watchdogs have made 46 enforcement actions in their crackdown with more on the way.
Where are the federal watchdogs in policing crypto fraud? The U.S. Securities and Exchange Commission is pondering whether to regulate digital coins as securities. So is the Commodity Futures Trading Commission, which regulates derivatives markets. But neither agency has done much of anything to rein in scams.
“While not every ICO or cryptocurrency-related investment is a fraud, it is important for individuals and firms selling these products to be mindful that they are not doing so in a vacuum; state and provincial laws or regulations may apply, especially securities laws,” noted Joseph Borg, president of the North American Securities Administrators Association, which headed the state regulators’ probe.
How can you protect yourself? Here’s what Borg recommends:
— If these products qualify as securities, they should be registered with the appropriate regulatory agencies or qualify for an exemption from registration.
— The securities registration process provides some protection for investors by subjecting the offering to regulatory review. But even registered offerings can be fraudulent.
— Investors should perform their own thorough due diligence before investing in any ICO or cryptocurrency-related product.
“Be cautious when dealing with promoters who claim their ICO offering is exempt from securities registration but do not ask about your income, net worth or level of investing sophistication,” Borg said. “Do your homework and contact your state or provincial securities regulator with any concerns before parting with your hard-earned money – afterwards may be too late.”