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The Latest Small Business and Investing Scams

The NASAA sees crowdfunding and digital currencies as new threats to investors and small businesses.

What potentially harmful scams should be on your radar this year? 

Updating its ongoing list of threats, The North American Securities Administrators Association, an association of state regulators that monitors security issues, released today four new threats which target small businesses and investors. 

The new threats, which make up a list of 10 total threats (see the full list here), come as a result of a changing financial and economic landscape, including the JOBS Act and the popularity of digital currency. 

Here's a brief summary of the newly added threats: 

Threats to Small Businesses

Capital-raising Pitfalls. New ways to gain capital, including accepting investments from angels and crowdfunding campaigns, can land a startup in unfamiliar territory. The NASAA reminded entrepreneurs that they are required to provide full disclosures of securities, even securities that are exempt from registration requirements.   

Unregulated Third Party Service Providers. The JOBS Act has created opportunities for unregulated third parties to offer their services to help raise money. The NASAA warned that using an unregulated third party doesn’t excuse businesses from complying with federal and state requirements. It also asserted that crowdfunding portals could open the door to scams. “Using a fraudulent portal means both the business and the investor stand to lose,” the NASAA said. 

Threats to Investors

Proxy Trading Accounts. In this scam, individuals who say they have trading experience will offer to set up and manage a trading account on an investor’s behalf. To avoid getting tangled up with an unethical trader, The NASAA recommended that investors check with their state securities regulator to confirm that an individual is properly registered and has a clean background. 

Digital Currency. The NASAA is skeptical of virtual money to say the least. The organization wrote: 

The value of Bitcoins and other digital currencies is highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts given the complicated mathematical algorithms that determine when new blocks of coins will be released. This environment has provided fertile ground for scam artists to capitalize on the increasing popularity and acceptance of digital currencies. 

In addition to these new concerns, classic investment threats like private offerings and ponzi schemes once again made it on to this year's list. The entire version can be found here.

Last updated: Oct 16, 2013

LAURA MONTINI | Staff Writer

Laura Montini is a reporter at Inc. She previously covered health care technology for Health 2.0 News and has served as an associate editor at The Health Care Blog. She lives in San Francisco.

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