The Directors of SEC and CFTC Enforcement Warn Would-be Virtual Currency Market Fraudsters

The Enforcement Directors of the SEC and CFTC took the unusual step of issuing a joint statement regarding virtual currency enforcement actions at the close of last week. SEC Enforcement Co-Directors Stephanie Avakian and Steven Peikin and CFTC Enforcement Director James McDonald cautioned: “When market participants engage in fraud under the guise of offering digital instruments . . . The SEC and CFTC will look beyond form, examine the substance . . . and prosecute violations . . .”

The statement was issued against a backdrop of significant price drops in virtual currency markets as countries considered banning the instruments. In the United States, where there is trading regulatory supervision split among various agencies, investors have been rushing to acquire virtual currencies. Unfortunately all to often those investors find that what they purchased is not an investment at all – their money is gone, stolen by a fraudster. Whether virtual currencies are truly the next great investment as some believe or just the next fraud waiting to take advantage of unsuspecting investors who often can ill-afford the loss, the risks are significant and the regulatory protections few as discussed here.