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We are grateful to have the opportunity to provide you with this valuable information via our monthly e-newsletter and our unparalleled forensic accounting, expert witness, and fraud investigative services.
The goal of this e-newsletter is to provide you with critical, inside information that will help you "follow the money" in business disputes, divorce cases, fraud cases, estate matters, corporate embezzlement, and to prevail when defending an IRS criminal case. We do this by sharing our knowledge we have from our 25+ years of experience as an IRS Special Agent and 25 years as a private investigator / forensic accountant.
We take special care to ensure the information we provide you in "The Beacon" is the latest and most current information available. This edition is part 2 of the good, the bad, and the ugly of Cryptocurrency.
We want to write about topics that will help you prevail with fraud, divorce, estate and probate, and IRS criminal cases. Please e-mail us your topics of interest to Thebeacon@sageinvestigations.com.
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Sincerely,
Edmond J. Martin
Principal, Chief Investigator
Certified Fraud Examiner (CFE)
Texas Board Certified Investigator (TBCI)
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Part 2 of Cryptocurrency; The good, the bad, and the ugly
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The not so Good
Cryptocurrencies (Crypto) such as Bitcoin, Ethereum, Litecoin, and hundreds more are hot commodities in online trading, and an intelligent investor can make a big profit[1]. Things have changed in one month. A Wall Street Journal Opinion by Andy Kessler sprinkled doubt by reporting that crypto loss is $1.5 trillion, and he predicts lawsuits will occur trying to assign blame. [2]
The Bad is Ugly
The prospect of quick riches has blinded individuals to the risks and enabled scammers to lure them into a fraud scheme. Crypto is not backed by the full faith and credit of the U.S. government or central bank, and its values change constantly. Crypto can be volatile. The Federal Trade Commission reported that 46,000 people had reported losses of $1 billion in crypto to scams since January 2021.
In 2017 then-SEC Chairman Jay Clayton cautioned "market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions."[3] Currently, Bitcoin is down more than 50% since its 2021 peak, Ethereum is down 65%, XRP 78%, and TerraUSD and its special crypto-token, the Luna, is down from $116 on April 5 to essentially zero.
More recently, movie stars, athletes, and financial experts have touted crypto. Advertisements have blurred the lines for individuals and regarding registration as a security or not.
In 2019 the SEC ruled in a letter that bitcoin specifically failed the Howey test, meeting only the "investment" criteria. Therefore, it was not a security. In 1946 the Supreme Court case, SEC v. W.J. Howey Co., established a four-prong test that determines whether something is a security under the Securities Act of 1933 and therefore subject to registration and reporting requirements. The test is, summarized as follows: "A security requires an investment of money in a common enterprise with expectations of profit from the efforts of others."
Another consideration is "Caveat emptor, quia ignorare non debuit quod jus alienum emit ("Let the buyer beware, for he ought not to be ignorant of the nature of the property which he is buying from another party.") The assumption is that buyers will inspect and otherwise ensure that they are confident with the integrity of the product (or land, to which it often refers) before completing a transaction. This is difficult for crypto buyers but does not give sellers the green light to actively engage in fraudulent transactions.
Crypto buyers must remember that the standard financial protections such as the 'full faith and credit of the U.S." do not apply to Cryptocurrency. The investment is complex and unregulated so beware. Study and understand the subject before investing in the family's nest egg.
- https://www.aarp.org/money/scams-fraud/info-2019/cryptocurrency.html
- https://www.wsj.com/articles/who-pays-for-crypto-collapse-class-action-lawsuits-bitcoin-ethereum-losses-investors-coinbase-luna-xrp-11655056359
- https://www.ftc.gov/business-guidance/blog/2022/06/reported-crypto-scam-losses-2021-top-1-billion-says-ftc-data-spotlight
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