One of the biggest benefits of AI in investing is the speed and accuracy of decision-making. With the ability to process large amounts of data quickly, AI algorithms can analyze market trends and identify profitable investments much faster than human traders. In addition, AI algorithms can be programmed to avoid psychological biases that can negatively impact human traders’ decision-making. This could result in more rational and profitable investment decisions.

Another potential benefit of AI in investing is the ability to identify patterns in data that humans might miss. AI algorithms can analyze vast amounts of data, including financial data, news articles, and social media, to gain a comprehensive understanding of a company and its potential for growth. This can provide investors with a more accurate picture of a company’s financial health and future prospects, allowing them to make better investment decisions. AI algorithms can also be used to develop predictive models for stock market performance. These models can take into account historical data, market trends, and other factors to forecast future stock prices. This information can be extremely valuable for investors, as it can help them identify stocks that are likely to rise in value and make informed investment decisions.

A further benefit of AI in investing is the ability to automate the trading process. AI algorithms can be programmed to make trades based on predetermined criteria, such as a specific stock price or market trend. This can save investors time and effort, as they no longer have to spend hours researching and making investment decisions themselves. It can also reduce the risk of human error, as AI algorithms are not subject to the same emotional or psychological biases as human traders. Despite the many potential benefits of AI in investing, there are also some concerns about the technology. For example, there is a risk that AI algorithms could be programmed to make unethical or illegal trades. In addition, there is a risk that AI algorithms could be vulnerable to hacking or other forms of cyber-attack, which could result in significant financial losses for investors.

Another concern is the potential for AI algorithms to exacerbate market volatility. If a large number of investors use AI algorithms to make trades, this could lead to rapid shifts in stock prices and market trends. This could result in increased volatility, making it more difficult for investors to make informed investment decisions. Despite these concerns, it is clear that AI has the potential to greatly impact the world of investing in the stock market. The technology has the potential to bring about many benefits, including faster and more accurate decision-making, better predictive models, and more efficient trading processes. However, it is important for investors to be aware of the potential risks associated with AI and to carefully consider how they use the technology in their investment strategies. In conclusion, the impact of AI on the stock market will likely be significant in the coming years. While there are still some uncertainties about the technology, it is clear that AI has the potential to bring about many benefits for investors. However, it is important for investors to be aware of the potential risks associated with AI and to use the technology carefully in their investment strategies. As AI continues to evolve, it will be interesting to see how it continues to impact the world of investing and the stock market as a whole

Along with the sharing his viewpoint that the majority of crypto tokens and cryptocurrency intermediaries are subject to federal securities laws and regulations, Gensler also shared a quote from the first SEC Chairman, Joseph Kennedy: “No honest business need fear the SEC.” [1] Gensler’s repeated reference to this quote supported his overarching message that regulatory oversight of crypto tokens and intermediaries should be viewed as a positive for the market rather than a negative.

In first speaking on crypto tokens themselves, Gensler noted that the purchase and sale of these tokens are subject to federal securities laws so long as the tokens meet the statutory definition of a security. Gensler cited Congressional purpose and history as well as the Supreme Court’s “Howey Test” in support of his view. [1]

Gensler pointed out that Congress intended a broad scope for the definition of a security, citing Justice Thurgood Marshall’s statement that “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.” [1]

Gensler then turned to the Supreme Court’s “Howey Test,” which sets forth the factors that comprise one form of security: an “investment contract.” [1] In line with the Howey Test, Gensler concluded that, because crypto investors buy and sell crypto tokens with the expectation of “profits derived from the efforts of others in a common enterprise,” the tokens are indeed investment contracts; thus, they are securities subject to federal securities laws.

Beyond discrete crypto tokens, Gensler also stated that the intermediaries, which host the exchange of crypto tokens, must also likely register with the SEC in order to comply with federal securities laws. Crypto intermediary platforms “match orders in crypto security tokens of multiple buyers and sellers using non-discretionary methods,” and this meets the legal test for regulatory oversight.

While Gensler views the majority of crypto tokens and cryptocurrency intermediaries as subject to regulation and oversight by the SEC, his remarks sought to underscore the merits of such regulation for all market participants.

He noted that those offering crypto tokens or operating crypto intermediary platforms should have open dialogues with the SEC to help ensure that any token or platform which legally requires registration with the SEC may avoid potential legal issues in the future.

Gensler also emphasized the important investor protections offered by SEC oversight of crypto tokens and intermediaries. In concluding his remarks, Gensler highlighted his view that crypto simply offers a new technology for the issuance and trading of securities, and the adoption of a new technology should not deprive the investing public of the critical benefits offered by required disclosures and registration with the SEC.

Although Gensler’s remarks are not representative of official guidance from the SEC, they shed light on the importance of regulating crypto markets, specifically as they expand in popularity and adoption by the general public. With regulatory oversight under existing federal securities laws, crypto investors gain important assurance of the legitimacy and safety of their investment portfolios.

Source:

[1] https://www.sec.gov/news/speech/gensler-sec-speaks-090822

The Investor Alert, released by the SEC’s Office of Investor Education and Advocacy, highlights the unique dangers investors face when evaluating investment prospects and making investment decisions via social media platforms or over the internet. In particular, the alert warns investors that investment information portrayed on social media may be “inaccurate, incomplete, or misleading.” [1]

Furthermore, the alert cautions that the broad-reaching and low-cost nature of social media can create “false impression of consensus or legitimacy” of investment prospects, creating the illusion that far more people are making the investment than truly are. [1]

More specifically, the Investment Alert sheds light on several common schemes used by fraudsters to target and take advantage of unsuspecting investors online. These schemes include impersonation schemes, “crypto” investment scams, and romance scams. [1]

Impersonation schemes are often, and easily, perpetrated over social media because social media platforms allow fraudsters to create false or misleading profiles. [1] For example, a fraudster might create a social media account impersonating a legitimate broker or investment adviser. [1] The fraudster can then use their false identity to convince investors to make investment decisions which enrich the fraudster at the investor’s expense.

As a result, social media users should be wary of investment opportunities communicated solely over social media platforms. Investors are urged to look out for typos within a supposed broker or adviser’s profile page or messages, as well as by considering whether or not the social media platform has “verified” the user as person they claim to be. [1]

Crypto investment scams are also on the rise, given the continued popularity of cryptocurrencies and their relative novelty. These scams often sound “too good to be true” and may take the form of a Ponzi or pyramid scheme involving crypto or the blockchain, promising low or no risk with high investment returns. [1] If an investor chooses to invest in cryptocurrency, the credentials of the investment opportunity can be investigated by using the search tool provided by the investor.gov website. [1]

Finally, online romance scams have also become increasingly prevalent in recent years. This type of scheme typically starts with a fake dating app or social media profile, which reaches out to a victim to begin the trust-building process. Once a relationship of trust has been created, the fraudster behind the fake profile will begin to inform the victim about supposedly lucrative cryptocurrency or other investment opportunities. [1]

Because trust has been built over time, victims may be more likely to believe the fraudster and funnel their hard earned money into one of these fraudulent investment scams.

Along with providing background information on each of the fraudulent schemes discussed here, the SEC’s Investment Alert provide additional information on market manipulation schemes and community-based investment fraud schemes. [1]

The overarching takeaway from this Investor Alert is clear: fraudsters are increasingly using social media and other online platforms to take advantage of unsuspecting investors, and their schemes are only becoming more creative.

Investors should remember that online platforms allow fraudsters to easily fabricate and disperse misleading investment information to the masses. Often, the best way to protect an investment is through careful research into any investment opportunity. Per the Investor Alert, a heavy dose of skepticism when an opportunity sounds “too good to be true” goes a long way.

If you have a question or concern about an existing investment or investment opportunity, reach out to the attorneys at Savage-Villoch law.

Sources: [1] https://www.sec.gov/oiea/investor-alerts-and-bulletins/social-media-and-investment-fraud-investor-alert

The eleven defendants include Forsage’s four founders as well as several “promoters” of the Forsage scheme. [2] The SEC’s complaint notes that to date, more than $300 million worth of transactions have occurred via Forsage smart contracts, despite the fact that the retail investors powering this scheme have received no good or service of value in return for their “investments.” [2]

Forsage is a classic pyramid scheme in that those at the top – namely the founders and promoters charged by the SEC – stood to gain the most wealth, especially as others joined the scheme after them. In fact, a recent scholarly report on the scheme found that more than 88% of Forsage users incurred net losses on their investments with the platform, with those at the top generating massive gains. [3]

While Forsage was promoted as an “income-generating opportunity” with impressive returns, the SEC alleges that the founders and promoters were well aware that their monetary gains were far higher than, and would be unattainable to, the retail investors they recruited. [2]

The Forsage scheme functioned exactly like a pyramid and Ponzi scheme, as wealth was almost exclusively generated through recruitment of additional “investors.” When an investor joined Forsage, the first step was to create a crypto-asset wallet, which was assigned a sequential Forsage ID. [2] The higher the Forsage ID, the later the investor had joined the scheme, and in turn, the lower returns an investor could actually expect to generate. [2]

Once an investor created their crypto-asset wallet, they could begin purchasing “slots” within Forsage’s smart contracts. [2] The purchase of a slot did not allocate any good or service of value to the investor. Instead, each slot purchased broadened the investor’s compensation earned from both new Forsage recruits and from existing members of the Forsage community. [2]

Upon purchasing a slot, the algorithm-based Forsage smart contracts would automatically direct crypto funds to the investor’s crypto-asset wallet whenever the investor recruited additional investors to join the scheme. [2] The smart contracts also automatically directed shares of funds from the broader Forsage community as a form of profit-sharing. [2]

A Forsage investor could not join the scheme without sending currency, in the form of Ether, over the platform. [3] In line with the structure of the Forsage smart contract code, currency sent by a new investor was automatically sent first to existing investors with lower Forsage IDs, thereby allowing those who had joined earliest to obtain the highest returns. [3]

The SEC’s complaint categorizes the slots within Forsage’s smart contracts as investment contracts which constituted securities. [2] These securities were not registered with the SEC. [2] As a result, the SEC alleges several violations of federal securities law, concluding that the founders and promoters were engaged in the unauthorized offer or sale of securities. [2]

This type of scheme is especially dangerous to unwitting investors because of the relative novelty of the cryptocurrency sector, along with the inability of law enforcement authorities to intervene and halt a scheme which is hosted over the decentralized blockchain. [4]

Additionally, hosting a scheme like this one over the blockchain affords the organizers the luxury of anonymity, something that would not be possible for organizers of a traditional pyramid or Ponzi scheme. [4]

Investors are urged to carefully evaluate their investment prospects to avoid falling prey to a cryptocurrency pyramid or Ponzi scheme like Forsage. While tales of high returns can be tempting, these schemes are specifically designed to trick investors into believing they will see returns that they won’t, while instead buffering the wallets of those who “invested” before them.

If you have questions or concerns about a potential cryptocurrency pyramid or Ponzi scheme, please reach out to the trusted attorneys at Savage Villoch law.

Sources: [1] https://www.sec.gov/news/press-release/2022-134 [2] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-134.pdf [3] https://arxiv.org/pdf/2105.04380.pdf [4] https://www.coindesk.com/layer2/2022/08/08/how-to-stop-forsage-meta-force-and-other-smart-contract-pyramid-schemes/

Before sharing his view of the SEC’s role in crypto markets, Chairman Gensler first compared the technology to that of the dotcom bubble in 2000 and subprime lenders leading up to the 2008 financial crisis. His message: the flurry of attention on crypto and related innovations does little to vouch for its long-term viability or success. Instead, as was borne out in 2000 and again in 2008, cryptocurrency could indeed be a technology destined for failure.

The SEC’s role then, in Gensler’s view, is to protect investors from the potential financial blowback of such a failure. While Gensler lauded the spirit of entrepreneurship common in the United States, he also argued that the SEC should approach crypto regulation in a “technology neutral” way. In so doing, the SEC could carry out their mission to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets, while still allowing crypto markets to flourish.

Gensler chose to focus on three discrete areas in which the SEC might appropriately step in with a regulatory scheme: crypto trading and lending platforms, stablecoins, and crypto tokens.

First, on the topic of crypto trading and lending platforms, Gensler noted the importance of these platforms being registered, thus allowing regulation in a similar manner to regulation of traditional securities exchanges. Gensler argued that in light of the functional similarities between “traditional regulated exchanges” and crypto platforms, investors on crypto platforms deserve similar regulatory protections. Such investor protections, Gensler noted, in turn promote investor confidence, which allows markets to work.

According to Gensler, stablecoins, which can be likened to bank deposits or money market funds, pose their own differing set of potential policy considerations. Stablecoins are rarely used in commerce, are not a legal tender, and are not issued by any central government.

As a result, stablecoins may impact monetary policy and financial stability within larger markets, may facilitate illicit activity, and may put U.S. investors at risk of losses created by unique conflicts of interest. Such conflicts arise because many of the platforms on which stablecoins are traded also physically own the stablecoins they trade.

Finally, Gensler approached the topic of the SEC’s regulation of all other crypto tokens. Most notably, Gensler stated that most crypto tokens are “securities” or “investment contracts” under U.S. law, thus necessitating registration by the SEC pursuant to existing federal securities laws.

The U.S. Supreme Court has held that an investment contract, or security, exists “when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”

Gensler noted that many crypto tokens are being sold by entrepreneurs who are looking to raise money from the public. This use-case places crypto tokens squarely within the definition of security or investment contract, and thus, submits crypto tokens to federal oversight. Regulation of crypto markets in this way safeguards not only crypto investors, but also the broader stability of the economy.

While Gensler emphasized that the views in his speech were his own and not representative of the SEC, his perspective will likely impact the SEC as it moves forward with enforcement policy. In the interim, Savage Villoch attorneys are available to consult on your cryptocurrency investment questions or concerns!

Sources: [1] https://www.investopedia.com/tech/question-why-should-anyone-invest-crypto/#:~:text=Another%20common%20reason%20to%20invest,dilute%20their%20value%20through%20inflation.

[2] https://www.sec.gov/news/speech/gensler-remarks-crypto-markets-040422

In total, the number of new enforcement actions filed by the SEC in FY 2021 increased by 7% over the previous year, with 434 new enforcement actions. While the total number of enforcement actions – including new actions along with other “follow-on” or open proceedings – decreased slightly year over year in FY 2021, the SEC remained committed to its role as “cop on the beat for America’s securities laws,” as described by Chair Gary Gensler. [1] The SEC maintained a sharp focus on protecting the integrity of the country’s capital markets through enforcement actions against bad actors even in the face of the persisting COVID-19 pandemic persisted.

In announcing its progress on enforcement actions during FY 2021, the SEC concentrated on several key priority areas. Some of these priority areas, per a recent SEC Press Release, included “holding individuals accountable,” “ensuring gatekeepers live up to their obligations,” “rooting out misconduct in crypto,” “policing financial fraud and issuer disclosure,” “cracking down on insider trading and market manipulation,” and “swiftly acting to protect investors.” [1]

While focusing on “holding individuals accountable,” the SEC noted that during FY 2021, it successfully lodged charges against top-level executives of corporate powerhouses. including CEOs at both Wells Fargo and Nikola, an alternative-fuel trucking company. [1]

In “ensuring gatekeepers live up to their obligations,” the SEC focused its attention on auditors and attorneys from various backgrounds who had behaved improperly, unprofessionally, or failed in their duties when auditing other companies. [1]

The SEC was able to further its “rooting out misconduct in crypto,” objective by carefully studying misconduct within the emerging cryptocurrency market, and subsequently charging both entities and individuals who fraudulently offered digital asset securities, such as bitcoin, thereby defrauding investors. [1] These actions garnered particular concern, given the largely unregulated state of the cryptocurrency space.

Beyond cryptocurrency concerns, the SEC also proved its focus on “policing financial fraud and issuer disclosure,” by continuing to diligently trace potentially fraudulent activities within the market. In doing so, the SEC uncovered possible violations of securities laws, and also investigated disclosures made by public companies which improperly failed to note potential COVID-19 pandemic impacts on their businesses. [1]

During FY 2021 the SEC also had its eyes on “cracking down on insider trading and market manipulation” by pursuing charges for insider trading relating to a biopharmaceutical company acquired by COVID-19 vaccine manufacturer Pfizer, Inc., as well as an insider trading ring connected to confidential data regarding Netflix’s subscriber growth over time. [1]

In pursing its myriad enforcement actions, the SEC also focused on “swiftly acting to protect investors” throughout FY 2021. Many cases involved the SEC filing emergency actions or restraining orders against defendants in Ponzi schemes, as well as suspending trading of more than 20 “meme stocks,” as concerns about market volatility reached a head in early 2021. [1]

In all, the SEC’s FY 2021 enforcement actions resulted in obtaining “judgments and orders for nearly $2.4 billion in disgorgement and more than $1.4 billion in penalties.” [1] Furthermore, FY 2021 was the highest year ever for whistleblower awards, as the whistleblower program awarded $564 million to just over 100 whistleblowers, and surpassed $1 billion in lifetime awards paid out. [1]

As the world rebuilds and adapts to life in the midst of a global pandemic, the SEC looks poised to continue its work in closely monitoring and enforcing federal securities laws through enforcement actions, with the ultimate aim of protecting not only capital markets, but also investors of all backgrounds.

Sources: [1] https://www.sec.gov/news/press-release/2021-238

The PRI is an independent network of investors who promote responsible and sustainable investing by incorporating ESG factors and considerations into their investment decisions. Although the PRI is not a part of the UN itself, the UN supports and partners with the group. In 2006, when the PRI was formed, it managed about $7 Trillion in assets, and in 2020, it managed over $100 Trillion. [1]

So why should you as an investor care about ESG investing? ESG factors and criteria empower investors to make “socially responsible” and sustainable investment decisions by providing important insight into a company’s operations, standard practices, and culture through the lens of Environmental, Social, and Governance considerations.

For example, a company might disclose Environmental factors such as their carbon emissions or water usage, aimed at conserving our natural world. Social factors place an emphasis on how a company treats both its employees and the public and include employee diversity statistics or human rights considerations. Finally, Governance factors focus on the way in which the company is led and include information like executive pay scales as well as political leanings. [2]

When an investor is equipped with meaningful – and truthful – ESG information, they can be confident in their monetary support of a company. As a result, ESG investing continues to be top of mind for investors and regulators in the United States. However, investor interest is not the only factor influencing ESG popularity. Sound ESG investing also yields relatively high returns when compared to conventional funds while providing relatively lower risk, according to a study by Morgan Stanley in 2019. [2]

While many companies voluntarily disclose ESG data, there is currently a gap in investor knowledge, as many ESG disclosures are not yet compulsory. One particular area in which this is true is with regard to climate change disclosures – which the SEC published guidance on in 2010 but have not been adjusted since then.

At Wednesday’s PRI event, Commissioner Gensler focused in on the value and importance of climate change disclosures and provided a glimpse into the future of SEC regulation of the topic. In particular, Gensler emphasized that these disclosures must be “decision useful,” meaning that they include sufficient factual information to allow proper decision-making to take place.

Gensler also highlighted the intense interest modern investors have in the climate risks associated with stocks they purchase, likening the investor push for climate risk disclosure today to the push for disclosure of basic financial information decades ago. In response to this investor interest, Gensler announced that he has tasked his staff with developing a proposal for mandatory climate risk disclosures for review by the end of 2021. [3]

The transition from the SEC’s current climate risk guidance to mandatory SEC climate risk disclosures is monumental, and it will allow investors to compare “apples to apples” when analyzing climate risk data between companies.

Furthermore, Commissioner Gensler spoke about the possibility of requiring disclosure of carbon emissions data not only for the company itself, but for each member of the company’s value chain. Granular data like this will provide investors with a truly actionable and “decision useful” basis for making investment decisions by providing not just a piece of the puzzle, but instead the full picture of a company’s true impact on the environment.

As we enter the back half of 2021, investors should be on the lookout for additional remarks by Commissioner Gensler relating to climate risks and ESG disclosures. While we have only a blueprint now, support and demonstrated investor interest in ESG factors will encourage the SEC to continue its pursuit of meaningful regulation to benefit investors like you.

Sources:

[1] https://www.unpri.org/pri/about-the-pri

[2] https://www.nerdwallet.com/article/investing/esg-investing

[3] https://www.sec.gov/news/speech/gensler-pri-2021-07-28

There are some situations in which FINRA arbitration is required, such as when a written agreement between the parties mandates it. In order to be eligible for FINRA arbitration, an investor must be seeking to file a claim stemming from the business activities of their broker or brokerage firm, and the event in question must have taken place within the last six years (in most states). [1]

Generally, FINRA arbitration allows an investor to seek either monetary or securities damages resulting from the business activities of their broker or brokerage firm. To get the filing process started, an investor must submit a Statement of Claim, a FINRA Submission Agreement, and related filing fees, all of which are available to view on FINRA’s website. [2]

The format and related fees for the arbitration itself vary based on the amount of money in controversy. When the amount in controversy is below $10,000, a hearing session will be conducted with just one arbitrator, and the session fee will be between $50 and $450. If the amount in controversy is above $10,000, a panel of three arbitrators may be used instead, and the hearing session fee will range from a minimum of $600 to a maximum of $1,575. [3]

Once FINRA receives all of the initial required documents, they analyze the claim and determine whether a one- or three-person arbitration panel will be used. A case number is created, and FINRA will notify the respondent – the party the investor has filed their claim against – about the case. So long as the respondent is registered with FINRA, they will be required to arbitrate.

The respondent then has 45 days to research the claim lodged against them and to respond. FINRA analyzes the response along with any counter claims or cross claims.

Next, the parties choose their arbitrators from a randomly generated list of names supplied by FINRA. FINRA arbitrators are not FINRA employees, instead they are contractors who are evaluated by FINRA on the basis of their employment, professional licenses, and education. They are chosen from diverse backgrounds and must take an oath to remain neutral and decide cases solely on the facts and meris.

Once arbitrators are chosen and agreed upon by both parties, there will be an initial pre-hearing conference, where investors are typically represented by an attorney. The arbitration hearing is scheduled, and discovery begins.

Discovery allows both parties to exchange documents and identify witnesses and is governed by rules within FINRA’s Discovery Guide. After discovery is completed, the arbitration hearing takes place.

The arbitration hearing takes place around a conference table, with arbitrators at the head of the table and the parties on each side. The claimant presents their side of the case first, complete with an opening statement, witnesses, and evidence, and is followed by the respondent. Objections are permitted, and the arbitrators determine whether or not they will accept evidence.

At the completion of the hearing, the arbitrator(s) will deliberate, and render their award, typically within 30 days. The award is legally binding on both parties, and FINRA offers no internal appeals process. While a party may choose to appeal an arbitration award in court, it should be noted that judges rarely overturn these awards.

From start to finish, FINRA arbitration cases that don’t settle before their hearing take approximately 16 months. The process allows for a streamlined and more private alternative to litigation in the courtroom, as FINRA arbitration documents are not made public like court documents. We invite you to contact us for details and support on your potential FINRA arbitration claim.

Sources: [1] https://www.finra.org/arbitration-mediation/arbitration-overview] [2] https://www.finra.org/sites/default/files/Education/p117486.pdf [3] https://www.finra.org/rules-guidance/rulebooks/finra-rules/12902]

Starting with the basics, what is a non-fungible token?

An NFT is a type of digital, cryptographic asset which exists on blockchain. Fungibility refers to interchangeability – assets like dollars, gold, and even Bitcoin, are fungible, because each unit is worth the exact same amount, and is thus readily interchangeable. On the other hand, each unit of a non-fungible asset has its own unique value and thus is not readily interchangeable – think of assets like property, artwork, and other collectibles. [1]

NFTs derive their value from their uniqueness. Each NFT has its own identification codes and related data within the blockchain to distinguish itself. It is impossible to replicate an NFT, which helps to create rarity among NFTs akin to that of traditional and tangible collectibles.

While there are several possible use cases for NFTs, the market is currently largely focused on collectibles. In particular, the popularity of digital artwork NFTs has skyrocketed in 2021. Artists are excited about this new market, as NFTs eliminate the need for intermediaries like art brokers, thereby increasing market efficiency. Artists can now post their artwork on digital marketplaces like OpenSea where anyone in the world can browse and purchase using blockchain-based cryptocurrencies, like Ethereum. [2]

But when you buy an NFT, what do you actually get? In the case of digital collectible NFTs, you are getting not only the digital piece of art, but also the NFT’s unique code and data on the blockchain. The value of the NFT comes from its unique identifiers. You are not, however, getting any intellectual property rights to the piece of art – those still belong to the artist.

Instead, much like physical pieces of art or baseball cards, you are paying to own an “original” or collectible item. For example, when Jack Dorsey sold an NFT of his first tweet, the buyer received a unique token on the blockchain that cannot be replicated. But that does nothing to change the fact that anyone with internet access can look at the tweet, screen shot it, or save a picture of the tweet on their phone.

The concept may seem nebulous to some, but its not so different from physical collectibles. It’s widely accepted that certain early edition baseball cards have inherent value to collectors. If someone were to simply take a picture of one of these collectible cards, that would do nothing to decrease the value of the original card, and similarly, would not suddenly give value to the picture someone took of it.

Of course, rarity alone does not necessarily equate to value – actual interest within the market participants of owning the NFTs is also essential. But it is yet to be seen whether this is what makes NFTs such an interesting and risky investment opportunity.

Many people are currently buying NFTs speculatively, not to own them long-term, but rather with the aim of selling them at a profit sometime in the future. While some NFT purchasers have already made huge sums of money in this way, it remains to be seen whether the current NFT craze will endure, or whether this is a passing fad brought on by the uncertain and unprecedented circumstances we’re all currently under.

In sum, NFTs present an equally intriguing and risky investment opportunity. If you are interested in the market, you should approach the decision to invest with extra care as the NFT market continues to develop and additional use cases and capabilities are explored.

Sources: [1] https://www.investopedia.com/non-fungible-tokens-nft-5115211 [2] https://www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html

The first cryptocurrency, Bitcoin, was introduced in 2009, and it has since been joined by over 1,900 competitors. Cryptocurrencies operate in a decentralized, purely digital block-chain network. Within the network, a supply cap on “coins” exists, and coin production is left in the hands of collective members of the system through a process known as “mining.” In Bitcoin’s case, there can only ever be 21 million coins mined, of which over 18 million have been mined thus far. Cryptocurrencies like Bitcoin derive their value largely from their limited supply, overall market demand, the cost to produce a bitcoin via mining, and competition from other cryptocurrencies.

Recently, Bitcoin’s price has been on the rise, stirring up a good deal of interest from prospective investors. As of February 6, 2021, one bitcoin is worth $39,255.90 –up about 300% year over year, and 34% year to date. But an investment in Bitcoin, or other cryptocurrencies like it, is unique in its risks. Experts caution that because cryptocurrency is a relatively new technology, and is not yet well understood by the public, prospective investors are at an increased risk of falling victim to fraudulent schemes.

From a regulatory standpoint, the SEC currently categorizes bitcoin as a security. However, bitcoin differs significantly from a traditional stock or bond because it does not represent shares of a corporation– it has no balance sheet, it is not impacted by government-imposed monetary policy or inflation rates, and its digital format makes it extremely difficult for regulators to access. As a result, cryptocurrencies like Bitcoin offer fraudsters a prime opportunity to engage in predatory behavior against investors.

This week, the US Department of Justice brought two recent cryptocurrency schemes to light. First, on February 1, 2021, a California man, John DeMarr, was charged with one count of conspiracy to commit securities fraud for soliciting investments in two companies he owned, which he misrepresented as highly profitable online cryptocurrency mining and trading platforms. DeMarr lured investors in with celebrity endorsements and fake press releases. But rather than investing his victims’ money in cryptocurrency technologies, DeMarr defrauded them of over $11 million, using the funds to furnish his lavish lifestyle instead.

On February 4, 2021, another cryptocurrency scheme unfolded as the 24-year-old founder of a cryptocurrency hedge fund pleaded guilty to one count of securities fraud. Stefan He Qin owned two cryptocurrency hedge funds which he told investors carried minimal risk because they were not impacted by volatile swings in cryptocurrency prices. Qin managed more than $90 million for his investors, which he used for personal expenses while providing his investors with falsified monthly investment performance reports.

These are just two instances of cryptocurrency fraud, but they are symptomatic of a growing trend in the cryptocurrency market. Eager investors looking to get involved in cryptocurrency and related technologies should exercise caution when making their investment decisions. The SEC has recently published an investor alert titled “Ponzi Schemes Using Virtual Currencies” which points out several red flags to be aware of, including investments touted as carrying little or no risk, unlicensed sellers, and investments requiring no minimum investor qualification.

While cryptocurrencies present an exciting investment opportunity for some, prospective investors should keep in mind their myriad risks, and regulators should continue to develop strategies for identifying and deterring fraudulent cryptocurrency schemes.