February 24, 2014 / 10:06 PM / in 4 years

Alabama securities regulator to issue bitcoin warning

Feb 24 (Reuters) - Alabama’s securities regulator said he will issue an alert on Tuesday, cautioning consumers and investors to stop trading on bitcoin exchanges or adding to their accounts if they are having trouble redeeming the digital currency or cashing out.

Joseph Borg, director of the Alabama Securities Commission, said he decided to issue the alert after reviewing dozens of complaints from around the United States from consumers who are unable to withdraw their money from bitcoin exchanges.

The vast majority of the complaints were about Mt. Gox, a Tokyo-based bitcoin exchange that suspended withdrawals indefinitely on Feb. 7 after it detected “unusual activity.” The company is having both “security and technical challenges,” according to an update on its website dated Feb. 20.

Some consumers, however, have been trying to get their money out for as long as four months, Borg said. Their initial deposits ranged from a few hundred dollars to $100,000, he said.

The figures are a concern because they suggest that smaller, “Main Street” investors are among those taking chances on the digital currency, said Borg, former president of the North American Securities Administrators Association, a group composed mostly of U.S. securities regulators.

Bitcoin exchanges allow their users to trade bitcoins for U.S. dollars and other currencies.

Consumer interest in bitcoin grew when online retailer Overstock.com Inc announced in January that it would accept the currency for purchases. Borg, who became head of the Alabama Securities Commission in 1994, is known for organizing coalitions of regulators from other states in high-profile enforcement cases.

While Borg’s alert may help to promote consumer awareness about the risks of trading on bitcoin exchanges, regulating the marketplace is still far off, he said. Federal agencies will have to step in because the exchanges are international, Borg said.

Some states such as Alabama, however, can regulate bitcoin exchanges as money transmitters, a type of business that transfers money between businesses and individuals, Borg said.

Any approach would require new regulations, Borg said. “Because it’s in the virtual world, it’s not something you can put your hands on.”

Borg’s upcoming alert was reported earlier on Monday by MarketWatch.

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