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Attorney General’s Investor Protection Unit cautions investors on use of virtual currencies

Date Posted: Tuesday, April 29th, 2014
Categories:  Consumer Protection Department of Justice DOJ Press Releases Investor Protection

Wilmington – Attorney General Beau Biden’s Investor Protection Unit today issued an investor advisory cautioning investors to consider the risks associated with Bitcoin and other virtual currencies.  Read the advisory online.

 

“Investing and trading in virtual currencies carries substantial risks,” Biden said.  “Unlike traditional currency, these alternatives are not issued by a governmental authority or backed by governmental guarantees and are subject to little or no oversight.”

 

Virtual currencies, which include digital and crypto-currencies, are gaining in both popularity and controversy. Virtual currencies are electronic mediums of exchange that are bought or sold through virtual currency exchanges and can be used to purchase goods or services where accepted.  Growing numbers of merchants, businesses and other organizations currently accept Bitcoin, a popular virtual currency, in lieu of traditional currency. Recently, one of the largest Bitcoin exchanges, MtGox, shut down after claiming to be the victim of hackers and losing more than $350 million of virtual currency. Despite the controversy, proponents of virtual currencies continue to purchase and hold virtual currencies, often to their detriment.

 

The Investor Protection Unit’s advisory alerts Delawareans to the risks associated with investing in any financial offering containing virtual currency.  They include:

  • Virtual currencies are not legal tender and companies do not have to accept them as a form a payment.  For example, if no one accepts Bitcoins, Bitcoins can become worthless.
  • Virtual currency holdings are vulnerable to hacking attacks; there may be no way to recover stolen virtual currency.
  • Virtual currency accounts are not insured by the FDIC, which insures traditional bank accounts up to $250,000 per account.
  • Virtual currencies are extremely volatile, and may be unsuitable for most investors.
  • Investors in virtual currencies must rely on unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than established financial institutions.
  • Unlike stocks, bonds, treasury bills, or other traditional investments, virtual currencies are not backed by any assets, legal rights or guarantees.

 

For more information about the risks associated with virtual currency, call the Attorney General’s Investor Protection Hotline at (302) 577-8424 or e-mail investor.protection@state.de.us.

 

The Attorney General’s Office, through its Investor Protection Unit, enforces the Delaware Securities Act, which governs the sale of investment products and the activities of investment professionals in Delaware.  The Unit investigates and prosecutes securities fraud and licensing violations by investment brokers and advisers.  Visit the Unit’s webpage at http://www.attorneygeneral.delaware.gov/fraud/ipu to review a variety of investor education resources, a searchable broker/dealer registration database, and information about filing an investor complaint.

 

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