Securities & Cryptocurrency: Why Only Accredited Investors are Allowed to Purchase Securities in the USA

Securities & Cryptocurrency: Why Only Accredited Investors are Allowed to Purchase Securities in the USA

Disclaimer: This article is for entertainment and general information purposes only. We do not make any guarantees that the information provided in this article is accurate or up to date. Always consult the appropriate professional legal console/attorneys, financial advisors, and tax specialists before making any business or financial decisions. We are not professional console, attorneys, financial advisors or tax specialists and the information provided in our articles does not constitute advice or guidance pertaining to the subjects we post about. Do not make any decisions based on the information provided in this article as it may be inaccurate. You assume full risk if you decide to use any information from our website or this article for any purposes whatsoever. For full terms of service and policies please ensure you review them here:https://cryptobeadles.com/legal-policies/

Buying and selling securities is often a long, paperwork-driven process. The Securities and Exchange commission, SEC, typically requires all securities offered by companies to be registered. However, there is a catch. Companies and private funds can be exempt from registration as long as they are purchased by accredited investors.

Breaking Down Securities

A security is a fungible, tradable asset that holds some type of monetary value. Securities generally represent an investment that allows companies and other commercial enterprises to raise new capital. Securities are great for companies because they can raise new funds without a bank loan. They are also preferred by many in the public as a source for investment. Securities can be broadly broken down into two categories: equities and debts.

Equities are an ownership interest held by shareholders in an entity, realized in the form of capital stock. When you purchase an equity security, your stock represents a portion of the company that you “own.” When investors purchase a substantial amount of equity security in a single company, they can have influence over business decisions.

Holders of equity securities are not typically entitled to regular payments, but they do profit from capital gains when they eventually sell their securities.

A debt security represents money that is borrowed and must be repaid. Debt securities include items like corporate bonds and entitle the holder to regular interest payments.

While many securities fall into one of these categories, the system is not black and white. For example, not all cryptocurrencies are registered as securities. In 2018, the SEC announced established cryptocurrencies like Bitcoin are not securities. However, certain coins offered during initial coin offerings might actually be considered to be securities. Cryptocurrencies that are actually securities must follow the laws set in place by the SEC.

Who Qualifies as an Accredited Investor

Since some cryptocurrencies are registered as securities, you must be an accredited investor to purchase those digital coins.

Not just anyone can qualify to become an accredited investor. In order to qualify, one of two conditions must be met. First, you as an individual must earn a yearly income of $200,000 on you own, or $300,000 when combined with your spouse. You must maintain this high-level income for at least three concurrent years. Second, you must have a net worth greater than $1 million, excluding your primary residence. These strict qualifications are set in place to protect you as an investor.

Individuals are not the only people who can become an accredited investor. Banks and private businesses can become accredited, but they have to meet a different set of standards.

There is no formal agency or process to secure this coveted status. Instead, the issuer of unregistered securities is liable for ensuring the purchaser meets the standard to be an accredited investor. Many issuers have a questionnaire that they have purchasers fill out. The questionnaire is often supported by various complementary documents, such as financial statements, salary slips or a letter from an attorney verifying accredited investor status.

Where the SEC Comes In

You may be wondering, why doesn’t the SEC have a registry for accredited investors? Instead of verifying every accredited investor, the SEC relies on businesses to do their due diligence to ensure investors purchasing unregistered securities are accredited.

The SEC has a three-part mission: protect investors; maintain fair, orderly and efficient markets, and facilitate capital formation. It was created at the height of the Great Depression in an attempt to keep the stock market from crashing again.

The SEC was established with the passing of the Securities Act of 1933 and the Securities Exchange Act of 1934. Since its creation, the SEC has been striving to meet two common-sense notions: companies offering securities for sale to the public must be transparent, and those who sell and trade securities must treat investors fairly.

The SEC is made up of five divisions that oversee different sectors. These divisions include:

Division of Corporate Finance, which ensures investors have all the necessary information to make the right investment decisions
Division of Enforcement, which enforces SEC regulations by investigating cases and prosecuting civil suits
Division of Investment Management, which regulates investment companies
Division of Economic and Risk Analysis, which uses financial economics and data to analyze the current and future market fluctuation
Division of Trading and Markets, which maintains standards for fair and orderly markets

Instead of spending time and money registering each accredited investor, the SEC relies on businesses to ensure their security sales are legitimate. If the SEC smells a fishy sale, the Division of Enforcement will investigate and recommend charges if necessary.

Limits on Certain Securities

You don’t have to be an accredited investor to purchase every type of securities. If you did, most Americans wouldn’t qualify to take part in the stock exchange. So why are there limits on certain securities?

Simply put – it’s the law. Under the Securities Act of 1933, the SEC requires companies to register their securities. When companies register securities, they disclose important financial information. This information allows investors to make informed decisions about the securities in which they are investing.

Since unregistered securities have not gone through this process, investors may not be fully informed about the security they are pouring money into. Unfortunately, this can lead to investments going south – fast. For an Average Joe, this can cause one’s financial situation to deteriorate. If a large portion middle class Americans lost their investments, the economy could quickly tank, sending America into a recession – or worse – another depression.

That’s where accreditation comes in. To qualify for accreditation, you need to prove you have a significant financial cushion. This way, if the deal does go under, you will still be in a stable enough financial situation to maintain your economic habits.

Repercussions for Selling to Non-Accredited Investors

Under Rule 506(b), companies are allowed to have up to 35 non-accredited investors. However, most businesses will tell you letting any non-accredited investors into your circle is extremely complicated.

When you sell a non-registered security to an accredited investor, you are not required to register any information about the security. However, once you add non-accredited investors into the equation, even under 506(b), your paperwork requirements skyrocket.

When non-accredited investors purchase securities, you are required by law to comply with detailed and comprehensive disclosure obligations. These disclosures are generally the same used in a registered offering. By that logic, it may make more sense for your company to simply register the security, so any investor can take part in the sale.

Part of the draw of non-registered securities is they are high risk – high reward. Investors may lose a lot of money, which is the purpose of the financial requirements, but they might also make a lot of money. Only time will tell if the investment will pan out.

When companies disclose information through registered offerings, the risk is often dramatically dropped. Investors are made starkly aware of the company’s financial situation. If the financial situation is dire, they may decide it is too risky to invest, even if the company projects better times on the horizon.

Disclosure is not the only reason companies tend to stay far, far away from non-accredited investors. While you are allowed to have up to 35 non-accredited investors, any more could cause financial and legal trouble for your business.

The Enforcement Division of the SEC investigates and recommends actions against securities law violations. If the SEC suspects your company has been selling unregistered securities to non-accredited investors, you can become the subject of a long, intense investigation.

All SEC investigations are conducted privately to ensure they are completed to the best of the agency’s ability. The division interviews witnesses, examines brokerage records, and reviews trade data to complete a thorough investigation. Following the investigation the SEC staff presents its findings to the Commission for review.

Once the Commission reviews the evidence, there are a few paths forward. The most common is companies confess to their actions and settles with the SEC without going to trial. This typically results in a monetary penalty. If a settlement cannot be reached between the SEC and the company, then the SEC can take civil or administrative action.

If civil action is the best path forward, the SEC will file a complaint with a U.S. District court. The commission will ask the court for an injunction, which will prohibit your company from any further acts that violate SEC rules. In addition, the SEC will seek monetary penalties and will make you return any illegal profits made from the invalid security sales. Although these are civil trials, they can extend into criminal trials if any company employee is found in contempt of court. The typical outcome of these trails is monetary fines or jail time.

Administrative action still involves a judge, but has less severe punishments. Administrative proceedings are heard by an administrative law judge that listens to evidence before making an initial decision. The initial decision includes a recommended sanction, which can include:

Cease and desist orders
Suspension of broker-dealer and investment advisor registrations
Censures
Bars from association with the securities industry
Monetary penalties
Disgorgement

Brokers and Investors Outside of the United States

If you do not qualify as an individual accredited investor, you aren’t automatically excluded from the inner circle. Instead, you have to rely on brokers. Brokers are people or companies that engage in transactions on behalf of an individual investor.

Most brokers are multi-billion dollar corporations that work tirelessly to ensure you get the most out of your investment. Afterall, if your investment fails they don’t get paid. They have the knowledge and financial backing to qualify as accredited investors.

As accredited investors, they can purchase unregistered securities on your behalf. You likely won’t reap the full benefits of the high-risk reward because your broker will take some of the profits. However, if you are set on investing in unregistered securities but can’t make the financial requirements, this is your best option.

For people living outside of the United States, security investments are a hot ticket. The U.S. remains the largest single recipient of Foreign Direct Investments, FDI, in the world. In 2017 over $259.6 billion was spent on U.S. FDI.

With so much foreign interest in security investment, the SEC has placed regulations on foreign investments. However, with so many investors, the SEC generally assesses each investor on a case-by-case basis.

As a general rule of thumb, if you are an American living outside of the United States, but still want to invest in the country, you are subject to the same regulations as any other American investor. This means you must be an accredited investor to purchase unregistered securities.

If you are a broker or dealer that operates in the United States for foreign investors, you are required to register with the SEC. Similarly, if you are a foreign broker-dealer from outside of the United States that trades U.S. securities, you have to register with the SEC.

Where Cryptocurrency Falls

Cryptocurrencies are a new form of investment. Created in 2008 with the first being Bitcoin, this type of digital currency has quickly grown in popularity. While this industry was once considered a wild west, the SEC has started to crack down on cryptocurrencies as a form of securities.

Long established companies like Bitcoin are not subject to SEC regulations. However, newer companies are expected to comply with SEC regulations with crypto tokens.

When a cryptocurrency company is established, it begins by selling crypto tokens as Initial Coin Offerings, also known as ICOs. These are basically a type of stock for cryptocurrencies.

When a developer starts a crypto company, they issue a limited amount of tokens. These tokens can either have a predetermined price, or can fluctuate as the company grows. When a company starts selling these tokens, depending on the definition and type of asset they are selling, they might have to register them with the SEC as securities. There are certain cryptocurrencies that have actual utility and don’t act like investments. These typically aren’t classified as securities, but the regulations could change. These crypto assets are typically called utility tokens or utility coins.

Although the SEC has started regulating blockchains, the industry is still trying to figure out its footing. As the industry grows, regulations may expand with it.

If you liked this article and found it informational or maybe you learned something new or have a better understanding about why certain companies like Monarch Blockchain Corporation require only Accredited Investors to purchase their Security Token, but also allow non-accredited KYC application approved people to partake in their Utility Token Generation Sale, be sure to share this article with a friend or on your social media accounts.

Also, if you’d like to learn more about blockchain technologies, cryptocurrencies and how the industry is growing and changing, be sure to subscribe to Robert Beadles YouTube Channel Called CryptoBeadles. You can view his Channel here: https://www.youtube.com/cryptobeadles.

Robert also has an avid community he talks with regularly on his Telegram channel. You can join the conversion Too! Join the Crypto Beadles Telegram Channel here: https://t.me/Cryptobeadlesgroup

Disclaimer: This article is for entertainment and general information purposes only. We do not make any guarantees that the information provided in this article is accurate or up to date. Always consult the appropriate professional legal console/attorneys, financial advisors, and tax specialists before making any business or financial decisions. We are not professional console, attorneys, financial advisors or tax specialists and the information provided in our articles does not constitute advice or guidance pertaining to the subjects we post about.. Do not make any decisions based on the information provided in this article as it may be inaccurate. You assume full risk if you decide to use any information from our website or this article for any purposes whatsoever. For full terms of service and policies please ensure you review them here:https://cryptobeadles.com/legal-policies/

Scrubbing Currency: A Comparison of Crypto to Fiat for Known Money Laundering

Scrubbing Currency: A Comparison of Crypto to Fiat for Known Money Launderings.

Disclaimer: This article is for entertainment and general information purposes only. We do not make any guarantees that the information provided in this article is accurate or up to date. Always consult the appropriate professional legal console/attorneys, financial advisors, and tax specialists before making any business or financial decisions. We are not professional console, attorneys, financial advisors or tax specialists and the information provided in our articles does not constitute advice or guidance pertaining to the subjects we post about.. Do not make any decisions based on the information provided in this article as it may be inaccurate. You assume full risk if you decide to use any information from our website or this article for any purposes whatsoever. For full terms of service and policies please ensure you review them here: https://cryptobeadles.com/legal-policies/

Money laundering is a complex and intricate process intended to conceal illegally obtained money, often by transferring it through an involved sequence of commercial transactions or banking transfers—all with the intent to hide its true origin.

Criminal endeavors that generate a lot of cash usually promote the most egregious cases of money laundering. All that money has to be accounted for somehow, and law enforcement agencies are always on the lookout for large sums of money being transferred or deposited in banks with no clear source of origin. In order to access their ill-gotten gains without raising suspicion or calling attention to themselves, criminals have to invest considerable time and effort to obscure the true source of all that dirty money. Only after that money has been successfully “laundered” can it be safely used by the criminals or criminal organizations.

Law enforcement agencies around the world have instituted sophisticated anti-money laundering systems to spot and intercept transactions that raise suspicion.These agencies cooperate on an international basis to help each other detect “dirty” money circulating in the international banking sector.

Efforts to Curb Money Laundering

Anti-money laundering efforts examine any misuse of the financial system, including stocks and securities, cryptocurrency, traditional fiat currency, and even credit cards. In recent years, money laundering has been of increasing concern, as much of the proceeds of money laundering schemes have been tied to the funding of terrorist organizations world-wide.

Money laundering however, seems almost commonplace. The Economist reported that the United Nations Office on Drugs and Crime estimates that between $800 billion and a staggering $2 trillion gets laundered each year. That’s a lot of money—between two to five percent of global gross domestic product. The growing internationalization of global currency trade makes money laundering even easier. Countries with bank-secrecy laws (like Switzerland, historically) can enable the transfer of large sums of money to countries that have bank-reporting laws, which enables criminals to deposit “dirty” money in one country and then transfer it to another—with no record of its origin required. In fact, some of the simplest money laundering schemes involve transferring money through several different countries to obscure its true origins.

Money laundering has been a problem for a long time, but it wasn’t always exactly illegal, at least not in the US. In 1986, the United States Congress passed an act called The Money Laundering Control Act, which criminalized money laundering in the US for the first time. It consists of two sections: one that prohibits individuals from giving or receiving money that was generated from a specific list of crimes, known in the Money Laundering Control Act as “specified unlawful activities,” or SUAs. The law also states that in order for financial transactions to fall under the heading of an SUA, the individual or individuals making the transaction must intend to conceal the source, ownership, or control of the funds—all things that money launderers seek to do. The second section of the law prohibits spending in any amount greater than $10,000 if the funds were derived from an SUA, regardless of whether an attempt is made to conceal the source or ownership of the funds.

Money Laundering and Fiat Currency

Up until recently, all the money laundering laws were focused on fiat currency. Fiat currency, if you’re not familiar with the term, might take a moment to understand. The word “fiat” comes from Latin and means “let it be done” or “it shall be.” Currency used to be “backed” by a physical commodity such as gold or silver. For instance, the English Pound—also called the Pound Sterling—is a promissory note that used to be worth exactly that: a pound of sterling silver.

Anyone who held a Pound Sterling note could go to a bank or exchange and trade that paper note for a pound of actual silver. The US dollar used to be backed by the “gold standard,” meaning any US currency could be traded, in theory, for a set amount of gold. The value of the dollar was intrinsically linked to the value of gold, and the exchange was seen to be “backed” by the commodity. The “silver standard” was another similar standard.

Up until 1971, the US government sold gold to foreign official holders of US dollars at the rate of $35 per ounce (which is astounding, when you think of today’s rates, which are in excess of a thousand dollars—a little over $1,300 as of this writing). After 1971, the US discontinued this practice, and in 1973 officially ended the gold standard. Thus, the US dollar was no longer reliant on a system of fixed exchange rates; the value instead became set by a system of floating rates. Most other countries followed suit, which is why the modern value of currency can (and does) fluctuate from day to day.

An interesting side note: prior to a presidential repeal in 1974, private citizens in the United States were prohibited from owning gold or engaging in transactions involving gold. Today, there are no countries that ban private ownership of gold—that went out when the “gold standard” died.

So, what we’re left with now is fiat currency. Not having any backing in physical commodities like gold or silver, the value of fiat currency is instead set by the laws of supply and demand—and the perceived stability of the issuing government. Almost all modern paper currencies are fiat currency.

In a nutshell, the value of fiat currency is determined by international agreements as to its worth. In other words, fiat, or “it shall be” currency is valued at exactly as much as various international bodies agree it’s worth. Nothing more.

The Rise of Cryptocurrency

Up until fairly recently, all anti-money laundering efforts have focused on fiat currency—because that’s all that existed. With the rise of cryptocurrency, new avenues and methods have become available to criminals interested in “scrubbing” the history or true origin of funds from financial transactions, thereby making use of the encrypted, decentralized nature of cryptocurrency markets. On the surface, cryptocurrency looks like the perfect solution to launder large sums of money with very little effort.

Here’s the thing though: cryptocurrency, due to the nature of the way it’s traded, might provide more effective methods of detecting and halting money laundering than any systems currently being used to combat the same thing with fiat currency.

Let’s focus for a moment on what cryptocurrency actually is. All cryptocurrencies are digital in nature—meaning they exist “virtually,” without any physical representation of the currency (other than some fleeting novelty production of physical tokens). As a purely digital type of currency, cryptocurrency relies on encryption techniques used to regulate the flow of transfers from one holder to another—and relies on the same type of encryption techniques for the generation of new units of cryptocurrency itself.

More to the point, the majority of cryptocurrency that exists is regulated and traded entirely independently of any central banking authority. Most cryptocurrencies are fully decentralized, and as such, one of the most democratized forms of currency that has ever been invented.

It is, in fact, very difficult to acquire cryptocurrency without first providing proof of your identity. All of the major cryptocurrency exchanges, partly in response to pressure being applied by various governmental bodies, have strict “know your customer” protocols in place that require would-be traders or holders of cryptocurrency to provide proof—usually in the form of government-issued identification cards—as to their real identity.

Cryptocurrency and World Governments: An Uneasy Truce

As cryptocurrency became more and more mainstream, thanks largely to the wild swings in the bitcoin market and speculation on its value as a long term investment, it captured the attention of world governments—perhaps precisely because it didn’t rely on centralized banking structures, and was therefore difficult (if not impossible) to regulate. Efforts to tax it have also proven to be difficult, but governments are figuring out ways to hold their citizens accountable.

There have been, especially in the past few years, numerous calls from financial institutions and governmental agencies for cryptocurrencies to institute regulations or systems to detect and prevent money laundering. This is especially a concern when it comes to the international drug trade.

Fiat vs Crypto: Built-In Tracking

As it turns out, it is much more difficult for criminals to hide the source and flow of cryptocurrencies than has been assumed. As stated above, it is next to impossible to acquire cryptocurrency without some form and binding proof of identity, and the very nature of cryptocurrency transactions, which relies on transfers to and from wallets identified by means of various digital markers, makes tracking cryptocurrency transactions all but automatic. Though there may exist ways to obfuscate or “tumble” crypto transactions, they are relatively easy to unravel by anyone who put the time and effort into doing so.

In fact, compared to traditional financial institutions, cryptocurrency has distinct advantages in keeping chains of transactions clear and visible. Each transaction is, by nature of the networks that handle them, public information. All anyone would need to “follow the money” would be the digital designation of the source of a transaction.

This is not the case with traditional banks. Transactions made using national or international banking organizations are protected by various privacy laws, and untangling a series of transfers and shifts would require search warrants or their international equivalent—and the cooperation of the banking entities involved.

The Traditional Banking Sector: A History of Failures

In fact, in December of 2018, the US Financial Industry Regulatory Authority (or FINRA) levied a $10 million fine on Morgan Stanley, the 38th largest bank in the world, for failure to comply with anti-money laundering legislation. This ordeal shatters the illusion that crypto exchanges are havens for criminals seeking to launder vast sums of illicitly acquired currency.

The cryptocurrency industry is run by smart people, people who recognize the value of validation and legitimacy. Every large exchange has progressively made its policies more in-line with defeating money laundering efforts before they can even take place, while the traditional banking world remains mired in outmoded, and difficult to change, regulations and practices.

That $10 million fine on Morgan Stanley was a result of an investigation that uncovered chronic and long-standing lapses in the giant bank’s anti-money laundering reporting system. As far back as 2011, Morgan Stanley suffered system failures of one kind or another which resulted in critically identifying customer information being lost or unrecorded. That resulted in a cascade of failures that made tens of billions of dollars of currency transfers and bank wires impossible to track. Any—or all—of that money could have been involved in money laundering schemes. It’s impossible to know.

The FINRA uncovered even more deficiencies in Morgan Stanley’s monitoring of stocks and commodity exchanges between 2011 and 2013, resulting in billions of shares of low-valued stocks being traded in a manner that had virtually no tracking or monitoring, which could have prevented the values of those stocks from being artificially (and illegally) inflated. Again, there is no way of telling what kind of malfeasance may have transpired.

It’s interesting to note that Morgan Stanley made no effort to deny or contest the charges and fines placed against it. Instead, they issued an understated but self-damning statement that read, “We are pleased to have resolved this matter from several years ago.”

And the problem isn’t just with American banks. In November of 2018, the Reserve Bank of India fined the German Deutsche Bank nearly half a million dollars for failing to properly identify customers involved in making deposits and transfers—and furthermore failing to accurately track the various subsequent movement of those traditional fiat currencies. At about the same time, the French banking institution Société Générale was charged $95 million for failure to comply with US anti-money laundering regulations—and was also faced with a larger $1.34 billion charge for breaking US trade sanctions against countries like Cuba, Iran, and Libya.

The following month, the Latvian bank BlueOrange faced a €1.2 million fine by that country’s financial regulating body for noncompliance with anti-money laundering regulations, and the US FINRA charged the Swiss bank UBS $5 million for its failure to adequately adhere to anti-money laundering systems.

In Conclusion

It is interesting to note that, to date, no cryptocurrency exchange has faced fines, reprimands, or legal action on any scale remotely similar to that faced by traditional banking institutions. This emphasizes the self-protective nature of cryptocurrency exchanges, the nature of the technology involved—which makes compliance with anti-money laundering regulations virtually effortless—and the fact that the traditional banking sector, mired in centuries of tradition and overly complicated systems of identifying customers, is a much more vulnerable venue for money laundering efforts.

If you’d like to learn more about blockchain technology, cryptocurrencies and how the industry is growing and changing, be sure to subscribe to Robert Beadles YouTube Channel Called CryptoBeadles. You can view his Channel here: https://www.youtube.com/cryptobeadles.

Robert also has an avid community he talks with regularly on his Telegram channel. You can join the conversion Too! Join the Crypto Beadles Telegram Channel here: https://t.me/Cryptobeadlesgroup

Disclaimer: This article is for entertainment and general information purposes only. We do not make any guarantees that the information provided in this article is accurate or up to date. Always consult the appropriate professional legal console/attorneys, financial advisors, and tax specialists before making any business or financial decisions. We are not professional console, attorneys, financial advisors or tax specialists and the information provided in our articles does not constitute advice or guidance pertaining to the subjects we post about.. Do not make any decisions based on the information provided in this article as it may be inaccurate. You assume full risk if you decide to use any information from our website or this article for any purposes whatsoever. For full terms of service and policies please ensure you review them here: https://cryptobeadles.com/legal-policies/

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