05 Dec After FTX debacle, what should we know before making an investment?

Q. In the wake of FTX, what documentation is absolutely necessary for an average investor to obtain and understand before putting money into a company?
— Investor

A. It’s a great question.

Regulators, lawmakers and pundits will probably be talking about FTX for years to come.

For average investors, there’s plenty of research you can do before investing in anything, and you should.

Investors in the cryptocurrency industry must be cautious and diligent, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York.

“The industry is relatively young and rules, regulations and oversight of entities in the industry are still being discussed and developed,” he said.

“Currently, the industry is largely unregulated and any oversight that U,S, regulators could have is undone by firms like FTX being headquartered offshore,” he said. “FTX did not have to subject itself to regulation and oversight like U.S.-based exchanges must.”

When making an investment in a company, you can access publicly available information such as filings made with the Securities and Exchange Commission (SEC), the U.S. government agency tasked with enforcing market and securities laws, Panambur said. “SEC rules require companies to file reports and disclosures on an ongoing basis.”

However, he said, keep in mind that many companies that follow SEC and other rules and regulations have still failed. That’s why it is so important to diversify your investments to protect yourself from losses, he said.

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This story was originally published on Dec. 5, 2022.

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