New York regulator takes aim at Bitcoin, other virtual currencies NEW YORK -- The state of New York's top financial regulator is turning up the heat on Bitcoin and other virtual currencies as government investigators grow increasingly alarmed that the emerging industry could aid criminals and terrorists. The state's Department of Financial Services said Monday it has launched an inquiry into virtual currency firms, which it may seek to regulate. The announcement comes as federal regulators have intensified their scrutiny of the industry. "If virtual currencies remain a virtual Wild West for narco-traffickers and other criminals, that would not only threaten our country's national security, but also the very existence of the virtual currency industry as a legitimate business enterprise," Benjamin Lawsky, the state's superintendent of financial services, said in a notice posted on the department's website. The department has authority over firms engaged in "money transmission," Lawsky said. Such firms are subject to regulatory examination and post collateral to safeguard customers' accounts, and the department said it may put in place other rules specific to virtual currencies. Quiz: How much do you know about Facebook? The department noted that virtual-currency companies could face steep criminal penalties if their platforms become the financial hub for drug-running, human-trafficking, terrorism and other illegal activities. "Taking steps to root out illegal activity is both a legal and business imperative for virtual currency firms," Lawsky said. The move by New York's financial regulator comes a couple of months after the federal government accused a large virtual-currency firm of conducting a $6-billion money-laundering scheme, the largest ever uncovered by U.S. authorities. In late May, federal prosecutors in Manhattan accused Costa Rica-based Liberty Reserve of operating as a bank of choice for the black market. Cameron and Tyler Winklevoss, meanwhile, have taken steps to launch an exchange-traded fund tied to Bitcoins. The twins, famous for their role in the Facebook saga, filed papers with the U.S. Securities and Exchange Commission in early July. Their filing noted the legal uncertainty facing virtual currencies: "It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoins in one or more countries, and ownership of, holding or trading in [the Bitcoin investment] may also be considered illegal and subject to sanction," the filing said. Share how your family is dealing with the economy and job market