Initial Coin Offering (ICO) might be dead for people, but the regulators haven’t forgotten about them. In fact, the U.S Securities and Exchange Commission (SEC) is likely considering the new crowd-funding concept of Initial Exchange Offering (IEO) much similar to ICO.
In a latest released published on January 14, 2020, US SEC warns crypto investors of IEOs, a crowd-funding operated directly by cryptocurrency exchanges available exclusively to the exchange’s users. Although IEO sounds more secure than ICO wherein the fundraising is operated by project owners, US SEC is quietly issuing the notice, stating that they may violate federal securities laws.
In initial statement of the release, SEC notes “IEOs are similar to ICOs” and jumped into emphasizing that this type of crowd fundraising is being touted as an innovation on ICOs. However, much similar to ICOs wherein SEC investigates the unregistered securities, in case of IEOs, SEC stressed that many platforms offering IEO services aren’t even registered with the SEC. It went on to add that these platforms….
“which may improperly refer to themselves as exchanges may also claim to perform due diligence or other quality assessments of the IEOs”
Even though ICOs are vetted by trading platforms, yet, SEC points out that this may still violate federal securities laws. Also, SEC warns crypto investor of IEO offering as;
Be cautious if considering an investment in an IEO. Claims of new technologies and financial products, such as those associated with digital asset offerings, and claims that IEOs are vetted by trading platforms, can be used improperly to entice investors with the false promise of high returns in a new investment space.
This being said, SEC is eyeing on those exchanges or platforms that have offered and going to offering IEO services without registering their securities offering. More so, SEC strongly argued that the registered entity doesn’t actually mean it is registered with the agency and continued “there is no such thing as an SEC-approved IEO”. It further emphasized that;
“Noncompliance with the federal securities laws means the IEO and/or trading platform may be operating unlawfully and the investor and market protections and remedies these laws are intended to provide may be absent.”
Consequent to the above statement, SEC warned investors to carefully investigate and perform due diligence before investing in the IEO. It also guided investors to know if “trading platform involved in the IEO has complied with federal securities laws or not”.
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