With cryptocurrencies continuing to attract headlines, Attorney General Alan Wilson and the Securities Division of the Office of the South Carolina Attorney General (the “Division”) today remind South Carolina investors to diversify investments and be informed when investing in largely unregulated products like cryptocurrency.
“Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency interest-bearing accounts, futures contracts, and other financial products where virtual currencies are linked in some way to the underlying investment,” said Attorney General Alan Wilson.
Recent bankruptcies of cryptocurrency companies have revealed that consumers holding accounts at these types of companies may be considered unsecured creditors. Unlike traditional currency, these alternatives have no physical form and typically are not backed by tangible assets. They are often not insured or controlled by a central bank or other governmental authority, cannot always be exchanged for other commodities, and are subject to little or no regulation. Recently, cryptocurrency exchange FTX.US, along with FTX.COM and its other businesses (“FTX”), filed for Chapter 11 bankruptcy protection and acknowledged misuse of client funds and an apparent hack and claimed total losses in the billions of dollars. Other cryptocurrency platforms that have filed for bankruptcy in 2022 include Celsius Network, LLC, Voyager Digital Holdings, Inc. and BlockFi Inc.
Investors should beware of “reload” scams where fraudsters purport to help you recoup funds that are locked in accounts or otherwise unavailable. For example, law enforcement in Singapore warned about a fake website pretending to be hosted by the U.S. Department of Justice. The phishing website instructs visitors to log in with their FTX username and password and falsely claims they will be able to withdraw their funds after paying legal fees. There are many versions of the reload scam, and investors should be cautious when interacting with any persons or entities whom they do not know and cannot independently verify their identities and credentials.
“Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility,” said Attorney General Wilson. “Understanding what you’re investing in, ensuring you are not investing more than you can afford to lose, and diversifying your investments remain top sound investment practices.”
Common Cryptocurrency Concerns
Some common concerns investors should consider before investing in any offering containing cryptocurrency include:
- Cryptocurrency is subject to minimal regulatory oversight and susceptible to cybersecurity breaches or hacks; there may be no recourse should the cryptocurrency disappear.
- Cryptocurrency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC) or by the Securities Investor Protection Corporation (SIPC).
- The high volatility of cryptocurrency investments makes them unsuitable for most investors, especially those investing for long-term goals or retirement.
- Investors in cryptocurrency are highly reliant upon unregulated companies, including some that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.
- Investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties, to protect purchased cryptocurrencies from theft.
The Division can be reached by calling 803-734-9916 or by emailing to [email protected]. Investors can submit a complaint or learn more about the Division by visiting the Attorney General’s Office website at https://www.scag.gov/inside-the-office/legal-services-division/securities.