WASHINGTON -- A day of reckoning has arrived for digital currencies as lawmakers take aim at the innovative but largely unregulated technology undergirding e-money, and a barrage of class-action lawsuits batter companies already whipsawed by the dizzying rise and recent selloff of digital currencies.
Federal and state regulators have hit at least four companies in recent weeks with charges that they'd made too-good-to-be-true appeals to consumers or sold securities improperly.
A sharp slide in the price of bitcoin and other digital currencies has only hardened anger on social media among investors and speculators. Bitcoin edged up slightly to $7,600 or so Tuesday afternoon, still far less than half its peak on Dec. 19 of over $19,000.
"There are so many people who have been scammed," said Jasper D. Ward, a Louisville, Ky., attorney who represents clients in two class-action lawsuits against a British company, BitConnect, that until recently was valued at $4 billion but has largely halted activity.
Regulators in North Carolina Jan. 11 ordered BitConnect to stop selling its products, and said the company targeted "persons of limited financial means, and unsophisticated investors" who would suffer particular hardship if their investments went down the drain. BitConnect did not immediately respond to a query.
Drama over the plunge of digital currencies, and a lack of regulation around the way they are traded, unfolded on YouTube, in courtrooms and on Capitol Hill.
Holed up in a hotel room in Myrtle Beach, S.C., an affiliate marketer who is not an employee of BitConnect, Trevon James, released a YouTube video Feb. 2 pleading with those who heeded his sales pitches to let him off the hook.
"I'm not guilty of anything. I'm affected by BitConnect closing the lending as much as anyone else," James said. "The people that joined a month ago, two months ago, they are going to be pretty sour. And I can understand that."
In a Reddit forum discussing James' role in the collapse of BitConnect, an internet user who goes by Weyrleader threatened, "There's people who lost everything because of your promotion and (are) going to be gunnin' for your ass."
The heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission, which respectively regulate financial instruments with an eye toward protecting investors and markets, testified Tuesday before the Senate Banking Committee on how they are reshaping their agencies to address problems posed by fledgling digital currencies. The chairmen of both agencies acknowledged a struggle to keep pace.