As credit unions and others ask more questions about bitcoin,regulators are keeping a keen eye on how advocates of the virtualcurrency are pitching the model as an investment opportunity.

In May, the Securities and Exchange Commission issued aninvestor alert concerned that potential investors could be easilyenticed with the promise of high returns in this new investmentspace, and also may be less skeptical when assessing somethingnovel, new and cutting edge.

At CUNA's recent America's Credit Union Conference in SanFrancisco, attendees packed a standing-room-only session onbitcoins that highlighted how the currency works.

During an April keynote talk at the NACUSO annual meeting inFlorida, Robert Herjavec, entrepreneur, author and one of the judges onthe television show Shark Tank, questioned the role ofbitcoin in the evolving payment space.

Meanwhile, both fraudsters and promoters of high-risk investmentschemes may target bitcoin users, the SEC said. The exchange rateof U.S. dollars to bitcoins has fluctuated dramatically since thefirst bitcoins were created a few years ago, the agency noted.

The SEC said as the exchange rate of bitcoin is significantlyhigher today, many early adopters of may have experienced anunexpected increase in wealth, making them attractive targets forcriminals as well as promoters of high-risk investmentopportunities.

“Fraudsters target any group they think they can convince totrust them. Scam artists may take advantage of bitcoin users'vested interest in the success of Bitcoin to lure these users intobitcoin-related investment schemes,” the SEC said.

The Texas Securities Commissioner recently entered an emergency cease and desist order against aTexas oil and gas exploration company, which claimed it was thefirst company in the industry to accept bitcoins from investors.The TSC charged the firm with intentionally failing to disclosematerial facts to investors including “the nature of the risksassociated with the use of bitcoin to purchase working interests”in wells, according to the SEC.

The company advertised working interests in wells in West Texas,both at a recent Bitcoin conference and through social media and aweb page, according to the emergency order.

In February, the SEC said it suspendedtrading in the securities of Imogo Mobile Technologies because ofquestions about the accuracy and adequacy of publicly disseminatedinformation about the company's business, revenue and assets.Shortly before the suspension, the company announced that it wasdeveloping a mobile bitcoin platform, which resulted in significantmovement in the trading price of the company's securities.

The Financial Industry Regulatory Authority also recently issuedan Investor Alert cautioning investors about the risks of buyingand using digital currency such as bitcoin.

In addition, the North American Securities AdministratorsAssociation included digital currency on its list of the top 10 threats to investors for 2013.

Among the bitcoin investment risks the SEC is concerned withinclude the virtual currency not being insured and its history ofvolatility. Because bitcoins are not legal tender, federal, stateor foreign governments may restrict their use and exchange.Further, the use of bitcoin may limit a user's recovery in theevent of fraud or theft, the SEC said.

Traditional financial institutions including credit unions andbanks often are not involved with bitcoin transactions, making itmore difficult to follow the flow of money, according to theSEC.

Although the SEC said it regularly obtains information fromabroad such as through cross-border agreements, there may berestrictions on how the SEC can use the information and it may takemore time to get the information. In some cases, the SEC said itmay be unable to obtain information located overseas.

Law enforcement officials may also have difficulty seizing orfreezing illicit proceeds held in bitcoins, the SEC said. Bitcoinwallets are encrypted and unlike money held in a credit union, bankor brokerage account, bitcoins may not be held by a third-partycustodian, the agency added.

The SEC and other agencies have warned investors interested inbitcoin to be on the lookout for pitches that promise guaranteedhigh investment returns and those that don't ask for personal networth or income requirements. Pressure to invest in bitcoin firmsright away and unsolicited offers are also red flags, the SECsaid.

Federal and state securities laws require investmentprofessionals and their firms who offer and sell investments to belicensed or registered, according to the SECU. Many fraudulentinvestment schemes involve unlicensed individuals or unregisteredfirms. The agency advised checking license and registration statusby searching the SEC's Investment Adviser Public Disclosure (IAPD)website or FINRA's BrokerCheck website.