Many people have heard about the recent collapse of the Bahamas-based cryptocurrency exchange FTX, its hedge fund Alameda Research, and the arrest of its founder, Sam Bankman-Fried. But other lesser-known cryptocurrency platforms have also failed in the last year:
- Blockfi
- Celsius Network
- Core Scientific
- Genesis Global Capital
- Three Arrows Capital
- Voyager Digital
This doesn’t include the recent failures of Signature Bank, Silicon Valley Bank, and Silvergate Bank, which were also heavily invested in crypto. Additionally, many cryptocurrencies themselves have failed and turned into “dead coins,” such as Squid Game, which was essentially a scam anyway, and TerraUSD and Luna, which failed together in March of 2022.
SEC Warns About Crypto
The SEC recently issued a new investor alert warning investors to exercise caution with highly risky cryptocurrency investments. In it, the SEC’s Office of Investor Education and Advocacy continues to urge investors to exercise caution when considering investing in crypto asset securities. They offer these important points:
- The offered crypto asset investments may or may not be registered in accordance with federal securities and other laws. Just as brokers, broker-dealers, investment advisors, crypto exchanges and so-called “alternative trading systems” must be registered with the SEC, the state in which they operate, and a regulatory agency like FINRA. Entities and platforms that engage in crypto trading are likely subject to federal securities laws. Without registration and disclosures, due diligence information like financial disclosures and other company information.
- Crypto asset security investments usually come with high risk and volatility. As we’ve seen, many crypto platforms like the ones listed above have collapsed, taking investors funds with them. In addition to the illiquid nature of the investments, the volatility, and their inherent risk, the company in which you invest may not be able to refund your principal if it goes bankrupt. Considering the crypto platform failures in the last 12 months, an investment in crypto securities is highly unpredictable, with the possibility of it either disappearing or becoming untradeable anywhere (the “dead coin.”) Hacking, malware and other technical problems are just some of the other problems that can quickly and easily derail an investment in crypto.
- Because crypto is a trendy, “of-the-moment” investment that’s highly technical, it is also rife with fraud. Even people who are otherwise tech-savvy don’t fully understand how it works. Scammers love to grab a headline and take advantage of people who are looking to get in on “the next big thing.” The SEC and state regulators continue to bring enforcement actions against scammers. But the reality is that many may never see their investment funds again, especially in a situation where the “investment” is another electronic Ponzi scheme.
- Celebrity endorsements are also something to be cautious about. In the FTX case, several celebrities were paid to endorse the platform, some in Superbowl commercials. But that doesn’t mean the investment is right for you, no matter what it is. SEC Chair Gary Gensler offers advice on the truth about what to consider when a celebrity endorses an investment.
- The SEC strongly suggests having your own investment plan that fits your investment goals and financial situation. Devise your own plan for investment based on your risk tolerance, not on emotion. Consider and engage in asset allocation and diversification, dividing your investments among multiple assets (i.e., stocks, bonds, cash, etc.) Pay off high-interest debt before investing, such as credit cards. And of course, avoid any potential investment where you don’t fully understand the risks.
Cryptocurrency investment losses can be significant, especially for inexperienced investors. The SEC strongly suggests not investing more than you can reasonably afford to lose.
Let The SEC Guide Your Investing
The SEC’s Office of Investor Education and Advocacy offers more investment information on Investor.gov. The website offers investment information along with calculators and other financial tools, including additional information on cryptocurrency investing. You can get updates from the SEC on Facebook, LinkedIn, Twitter, or sign up for their email updates. The SEC’s official YouTube channel also has information on cryptocurrency as well as other aspects of investing.
Silver Law Group Can Help You Recover Your Losses
While state and federal securities regulators take enforcement actions against securities law violators, investors may not be compensated for their losses. Sometimes an investor’s best chance for recovering investment losses is to retain a securities arbitration attorney.
The experienced securities arbitration attorneys, case investigators, and forensic accountants at Silver Law Group are ready to investigate your case and determine if you have a viable claim to recover losses. Call us at (800) 975-4345 or e-mail ssilver@silverlaw.com for a confidential no-cost consultation.