“Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility,” Mike Unthank, superintendent of the New Mexico Regulation and Licensing Department, said in a recent advisory. “Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart.”
The value of bitcoin jumped last year from below $1,000 to almost $20,000 in December before falling back to around $9,000 currently.
Cryptocurrencies are a medium of exchange created and stored electronically in blockchain, a distributed public database that keeps a permanent record of digital transactions.
They aren’t insured or controlled by a central bank or other government entity, can’t always be exchanged for other commodities and are subject to little or no regulation, the advisory said.
Common varieties are Bitcoin, Ethereum and Litecoin. The currencies, unlike traditional money, have no physical form and are not backed by tangible assets.
A survey of state regulators, conducted by their professional association, showed that 94 percent believe there is a “high risk” of fraud connected to cryptocurrencies. The survey drew unanimous agreement that more regulation is needed to protect investors.
Here are some red flags when it comes to investment fraud, according to the state’s Securities Division:
• There is no such thing as guaranteed investment returns, and there is no guarantee that the cryptocurrency will increase in value. Be wary of anyone who promises a high rate of return with little or no risk.
• An unsolicited sales pitch can be the sign of a fraudulent investment. Cryptocurrency investment opportunities are promoted aggressively through social media. Be wary of an unsolicited communication about an investment you didn’t ask for and that’s from a sender you don’t know.
• The old standby advice when it comes to scam prevention: If the project sounds too good to be true, it probably is. Watch out for exaggerated claims about the investment’s future success.
• Look for pressure to act immediately. In particular, beware if someone pushes you to “get in on the ground floor” of a new tech trend. Instead, take your time about researching any investment opportunity.
• Watch for unlicensed sellers or unregistered firms. “The Securities Division can help investors research the background of those selling or advising the purchase of an investment.” Call 1-800-704-5533 or go to redflagsnm.com.
◊ ◊ ◊
If you’re hiring an accountant or tax professional to prepare your returns, you can verify whether they are properly licensed by the state by going to the state Regulation and Licensing website at rld.state.nm.us.
Professionals must provide their Preparers Tax Identification Number upon request, said Attorney General Hector Balderas.
Always make sure the preparer signs the return upon completion; “it should never say ‘self-prepared,’ and consumers should never sign a blank return,” Balderas said in a news release.
Also know that an accountant or tax professional is not permitted to deduct fees from your refund or otherwise reduce what the IRS owes you for their own benefit, he said.
“If you hire someone to prepare your taxes, ask questions because reputable tax preparers will be happy to answer them and will work to get you the refund you are owed,” Balderas said in the release.
Other things to keep in mind this tax season:
• Do not allow your refund to be deposited in someone else’s bank account, no matter what the purported reason.
• A reputable tax professional or preparer should never quote a specific refund or generally promise a high amount of money without carefully reviewing the previous year’s tax return and the current household financial picture.
Ellen Marks is assistant business editor at the Albuquerque Journal. Contact her at firstname.lastname@example.org or 505-823-3842 if you are aware of what sounds like a scam. To report a scam to law enforcement, contact the New Mexico Consumer Protection Division toll-free at 1-844-255-9210.