Alright, here we go again… 

Here’s another platform where people have sent tens of millions of dollars for an investment that may be going south or being investigated. The SEC, the major US government investigative agency the Securities and Exchange Commission, is looking into Coinbase, one of the largest platforms to see if there are any violations. This all comes down to something we see a lot with investigative efforts for scams and frauds. When somebody puts money into something, whether you call it an investment or not whenever you put money in, it has the risk of losing that money. If there’s an opportunity to make money, that’s an investment. That is profit and that’s fine. If you have the opportunity to lose money that’s part of the risk. The big question is, is it a security? 

A security is a legal definition of a certain type of vehicle that allows an investor to put money into something and make a profit. A security has to have certain requirements, it has to have certain disclosures and it has to be sold by a registered securities agent. Again we’re not attorneys, we’re not giving you legal advice. A lot of times when we have a client that comes to us for an investigation that has lost money, the question is, did the person or company that solicited that money represents that they had a security even if they didn’t call it a security? By definition of the features is it a security? 

Sometimes the companies misrepresent something that really is a security and they know that it is. They just don’t classify it that way in order to get around disclosures and protections. Sometimes they don’t even know. There are many companies that don’t even know that what they’re doing is selling a security without a license. So, any time you’re putting money into something with the opportunity that it’s going to go up and the risk of might go down, you have to ask yourself, does this qualify as a definition of a security? If YES:

  1. Is it being marketed as a security?
  2. Are they licensed? 

That’s a big red flag. If something is a security whether they call it or not and they’re not licensed, that’s a red flag. If they’re doing that wrong, what else are they doing wrong? Again we’re not sure, we don’t know if Coinbase is, or what their deal is but they’re being investigated. There is no definitive answer if it’s right or wrong, but even things like that NRIA real estate fiasco where they’re being investigated and filed bankruptcy. That was something that wasn’t a security. Sometimes defined as a security other times not. And in many cases, an investment company can evade securities by calling somebody a qualified investor, also known as an accredited investor. Where they have a certain amount of financial assets, a certain amount of income where they don’t have to abide by securities laws.

Again, anytime you’re putting money into something that is designed to make a profit but could also take a loss, you have to look at it this way: is this something that is under the definition of a security and if it is, are the presenters of this doing all they need to do to make sure they abide by securities laws? This can prevent a lot of losses through these scams and frauds. 

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