A warning from the SEC’s (United States Securities and Exchange Commission) Investor Advocacy and Education branch was sent out today that urged citizens to be cautious regarding initial coin offerings.
The SEC said that citizens should be careful investing in IEOs, as claims of new financial products and technologies like those that are related to digital asset claims and offerings and IEO claims scrutinized by trading platforms could be improperly used to give investors a false sense of hope of gaining high returns in their new investment space. IEOs not only lack the exempt and registered securities that protect investors but also violate federal securities laws.
The Big IEO Takeover
IEOs have taken off significantly since the early part of 2019, as numerous projects took advantage of several crypto exchanges to directly launch their tokens onto these platforms, which is similar to the ICO boom of 2017.
A large amount of traffic was hosted through Binance’s launchpad, as a couple of projects were listing their IEOs on the platform. Over $6 million dollars was tallied by Fetch.Ai (FET) shortly after the start of its IEO launch on February 25th, 2019.
SEC Is Caught Up
In late 2018, the increasing popularity of ICOs was under fire with the SEC, as the commission began to take steps to crack down on their fundraising strategies.
Several ICOs were chased down and penalized over the course of two years for providing unregistered securities.
Today’s SEC post said that their regulatory body was going to inspect some IEOs, citing that depending on the offering, some of them would need to register with the agency. The exchange that’s hosting the IEO may also need multiple licensure and approval forms from the SEC.
In addition, the commission stated that IEOs must be compliant with the federal securities laws. Any IEO along with its participants (which include the online trading platform) that don’t discuss or address the federal securities laws and their relevancy should be avoided at all costs.
The SEC warns investors to beware of IEOs, their platforms, and other advocates who peddle misleading approvals and registrations. SEC-approved IEOs don’t exist, according to the commission.