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. 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 If you are thinking about investing in a Bitcoin-related opportunity, here are some things you should consider. Investments involving Bitcoin may have a heightened risk of fraud. Innovations and new technologies are often used by fraudsters to perpetrate fraudulent investment schemes. Investors may find these investment pitches hard to resist. Instead, the defendant allegedly used bitcoins from new investors to pay existing investors and to pay his personal expenses.
As with any investment, be careful if you spot any of these potential warning signs of investment fraud: There is no such thing as guaranteed high investment returns. Be wary of anyone who promises that you will receive a high rate of return on your investment, with little or no risk. An unsolicited sales pitch may be part of a fraudulent investment scheme.
Federal and state securities laws require investment professionals and their firms who offer and sell investments to be licensed or registered. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms.
No net worth or income requirements. The federal securities laws require securities offerings to be registered with the SEC unless an exemption from registration applies. Most registration exemptions require that investors are accredited investors. Be highly suspicious of private i. Sounds too good to be true. If the investment sounds too good to be true, it probably is.