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Appeared on: Wednesday, March 12, 2014
FINRA Issues Alert On Bitcoin Risks

The Financial Industry Regulatory Authority (FINRA) has issued an alert to caution investors that buying and using digital currency such as Bitcoin carry risks.

FINRA says that speculative trading in bitcoins carries significant risks adding that there is also a risk of fraud related to companies claiming to offer Bitcoin payment platforms and other Bitcoin-related products and services.

FINRA's Investor Alert adds to a chorus of Bitcoin-related warnings from other regulators. The threat of Bitcoin-related fraud is a real danger for investors looking to make a quick profit from Bitcoin. For example, on February 19, 2014, the SEC suspended trading in the securities of Imogo Mobile Technologies Corp, which had announced testing of a new mobile platform for Bitcoin a few weeks earlier.

"Speculators drawn to Bitcoin trading should understand that Bitcoin prices have fluctuated widely, and wildly, almost from the currency's inception," said Gerri Walsh, FINRA's Senior Vice President for Investor Education. "Investors looking to get in on the ground floor of a Bitcoin-related company should realize that fraudsters may see the latest digital currency trend as a chance to steal their money through old-fashioned fraud."

Recent events made is clear that platforms that buy and sell bitcoins can be hacked. In addition, unlike banks and credit unions that provide certain guarantees of safety to depositors, there are no such safeguards provided to bitcoins residing in so-called "digital wallets."

FINRA also pointed to the use of Bitcoin in money laundering and drug payments.

FINRA noted the closure of Japan-based Mt Gox, once the largest Bitcoin exchange which said it had been robbed of nearly half a billion dollars' worth of the digital currency, most of it clients' money.

Mt Gox filed for bankruptcy protection in Japan at the beginning of this month and in the United States on Monday.

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