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Company Filings More Search Options. The rise of Bitcoin and other virtual and digital currencies creates new concerns for investors. A new product, technology, or innovation — such as Bitcoin — has the potential to give rise both to frauds and high-risk investment opportunities.
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.
We previously issued an Investor Alert about the use of Bitcoin in the context of a Ponzi scheme. Bitcoin has been described as a decentralized, peer-to-peer virtual currency that is used like money — it can be exchanged for traditional currencies such as the U.
Unlike traditional currencies, Bitcoin operates without central authority or banks and is not backed by any government. If you are thinking about investing in a Bitcoin-related opportunity, here are some things you should consider.
Innovations and new technologies are often used by fraudsters to perpetrate fraudulent investment schemes. Investors may find these investment pitches hard to resist. As with any investment, be careful if you spot any of these potential warning signs of investment fraud:.
Both fraudsters and promoters of high-risk investment schemes may target Bitcoin users. The exchange rate of U. As the exchange rate of Bitcoin is significantly higher today, many early adopters of Bitcoin may have experienced an unexpected increase in wealth, making them attractive targets for fraudsters as well as promoters of high-risk investment opportunities. Fraudsters target any group they think they can convince to trust them.
The fraudsters may be or pretend to be Bitcoin users themselves. Similarly, promoters may find Bitcoin users to be a receptive audience for legitimate but high-risk investment opportunities. Fraudsters and promoters may solicit investors through forums and online sites frequented by members of the Bitcoin community. If fraud or theft results in you or your investment losing bitcoins, you may have limited recovery options.
Third-party wallet services, payment processors and Bitcoin exchanges that play important roles in the use of bitcoins may be unregulated or operating unlawfully. Law enforcement officials may face particular challenges when investigating the illicit use of virtual currency. Such challenges may impact SEC investigations involving Bitcoin:. Before making any investment, carefully read any materials you are given and verify the truth of every statement you are told about the investment.
For more information about how to research an investment, read our publication Ask Questions. Ponzi Schemes Using Virtual Currencies. Social Media and Investing — Avoiding Fraud. Private Oil and Gas Offerings. More Than a Bit Risky. Report a problem concerning your investments or report possible securities fraud to the SEC. Securities and Exchange Commission. Investor Alerts and Bulletins. IRS treats Bitcoin as property.
The IRS recently issued guidance stating that it will treat virtual currencies, such as Bitcoin, as property for federal tax purposes. As a result, general tax principles that apply to property transactions apply to transactions using virtual currency.
Instead, the defendant allegedly used bitcoins from new investors to pay existing investors and to pay his personal expenses. Bitcoins for oil and gas. The company advertised working interests in wells in West Texas, both at a recent Bitcoin conference and through social media and a web page, according to the emergency order. Recent Bitcoin exchange failure. A Bitcoin exchange in Japan called Mt. Gox recently failed after hackers apparently stole bitcoins worth hundreds of millions of dollars from the exchange.
Gox subsequently filed for bankruptcy. Many Bitcoin users participating on the exchange are left with little recourse.