With Initial Coin Offerings (ICOs) virtually gone and Initial Exchange Offerings (IEOs) now dominating the cryptocurrency industry as the newest method of fundraising for blockchain projects, the United States Security and Exchange Commission (SEC) has warned US investors to be cautious when investing in them.
The regulator issued a official notice today, warning crypto investors that IEOs and ICOs are very similar and may still be subject to federal securities laws.
According to the Commission, crypto exchanges that conduct initial exchange offerings are typically not registered with the SEC. This is a regulatory violation since IEOs “They lack many of the investor protections of registered and exempt securities offerings..
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Reads the SEC statement: Be careful when considering an investment in an IEO”. Claims for new technologies and financial products, such as those associated with digital asset offerings, and claims that IEOs are vetted by trading platforms, “can be misused to lure investors with the false promise of high returns in a new investment space”. - SEC warns
Despite being called an ICO innovation, the US regulator noted that IEOs could involve the sale of securities. Therefore, IEO issuers may be subject to the same registration requirements that apply to offerings under federal securities laws.
According to the SEC, if the IEO involves securities, then the exchange facilitating the sale may be required to register with the regulatory body separately. "as a securities exchange or operates pursuant to an exemption«. As an alternative trading system (ATS) to protect investors from fraud
The SEC will closely monitor initial offerings
“An ATS must be a registered broker-dealer and meet applicable requirements in order to legally operate in the United States. Federal laws and regulations governing national registered securities exchanges. And ATSs are designed to protect investors and avoid fraudulent and manipulative business practices. " The regulator explained.
If an IEO and the trading platform supporting the fundraising do not comply with federal securities laws, then the IEO or exchange may be operating illegally without investor protection. Additionally, an IEO or exchange may claim to be registered, but that does not make it true. “There is no such thing as an SEC-approved IEO,” the SEC adds.
Although the ICO season is over, the US regulator is still investigating and penalizing fraudulent projects, as well as those that failed to comply with federal securities laws.
In October 2019, the SEC criticized block.one, the company behind EOS blockchain. With a $ 24 million fine for not selling unregistered securities in the form of ICOs.
