Investors in cryptocurrency were put on their heels late last year when News broke out that Floyd Mayweather was fined some $600,000 by the Securities and Exchange Commission of the United States in relation with involvement in cryptocurrency investment.
It turned out the fine was for failing to disclose that he had been paid by three cryptocurrency companies to promote their Initial Coin Offering (ICO).
According to the Washington Post, the SEC said Mayweather received $100,000 from Centra Tech and $200,000 from two other companies to promote their ICOs. By keeping these payments secret, Mayweather violated federal securities laws that mandate disclosure in such instances.
“These cases highlight the importance of full disclosure to investors,” Stephanie Avakian, co-director of the SEC’s enforcement division, said[…]. “With no disclosure about the payments, Mayweather […]’s ICO promotions may have appeared to be unbiased, rather than paid endorsements.” continued the report.
“Be wary who to listen to when attempting to make an investment” is the lesson the US federal securities laws is seemingly saying. If a well-known person says he’s into it, that doesn’t necessarily mean it is a good investment. The being famous of an endorser of a product is not sufficient criteria for one to believe them.
Here are some of the desirable reminders often trumpeted by investment advisors to prospective investors before making an investment in a prudent manner:
The investor acquires knowledge about the product/item that is being invested on
It is often pointed out how desirable for an investor to know details and facts like: does the investment scheme have a life span, how much money is to be invested, how much time should be devoted to it, what requirements are needed to be complied with before proceeding and maintaining the investment;
What are the physical structures needed, and what are the documentary requirements needed to be processed to prove ownership of the product/item.
The original investment may also be no longer recoverable once it is committed. In other cases, the resources will be tied up for considerable long periods of time before it could be reverted to personal funds.
Then evaluate the level of willingness on committing these outflows of personal resources before making the investment.
The investor acquires knowledge about the returns and how to obtain them
Earning profit on the investment is the ultimate goal so getting awareness of what to expect in return is paramount.
These gains could be of these kinds: they could be tangible and intangible; real or just paper gains. They maybe withdrawable within a short period or could be tied up for a considerable amount of time. Some of them become part of the original investment and will be recoverable at the end of the life span of the investment.
Again, evaluate the willingness in accepting these gains before making the investment.
The investor obtains understanding on possible obligations attached to these gains
A lot of gains require the recipient to pay extra charges in order to collect them like commissions and taxes, along with documentation. Non-compliance with these obligations may lead to bigger financial problems.
The investor obtains understanding about the risks associated with the investment
Often, there are factors, conditions, and possibilities that may lead to the eventual total loss of the money invested and the non-compensation of the efforts made in the investment. These maybe self-inflicted by the investor, caused by circumstances not under the investor’s control, or both.
By obtaining understanding of these factors, conditions and possibilities, the investor can counter with ways to minimize, if not totally avoid them, while maintaining the health of the investment.
The investor acquires knowledge on ways to get out of the investment
Knowledge on the opt-out clauses available in case the investor don’t want to continue with the investment and ascertaining how to execute them when the desire to cash out arises helps in greatly avoiding the depletion of the resources committed to the investment.
Likewise, awareness of what eventually happens with investment in case there is no out will not surprise the investor when that eventuality finally happens.
The investor is advised to avail the aid of experts when in doubt
Searching for experts and/or advisers in the field of the chosen investment scheme and keeping the ways to contact them is often advised.
It is emphasized to prospective investors to avoid being hesitant to consult them whenever there is lack of capability on the investor to analyze the investments on their own, even when these services requires payment.
The cost of these services maybe minor in relation to the savings it will give by possibly avoiding a lot of future losses.
The investor should invest only what he/she can afford to lose
Advisors often point out the being bad of an idea and not advisable to invest money that is intended for payment of necessities like personal and household daily expenses, tuition fees, and medicines.
The investor be wary of inviting others to join the chosen investment scheme
Some investments schemes encourage or require an investor to recruit more investors into the scheme. As such, awareness on the prospective investor on why everybody does not think alike and not afford the same things in life is a big guide whether to entice others or not into joining the scheme.
The act of enticing, convincing, or even forcing one to also join and make a cash or resource outflow as investment can possibly put the investor in undesirable positions like fights with acquaintances, friends and relatives; financial reimbursement; legal trouble; and more.
By: ARMANDO M. BOLISLIS