US SEC Urges Investors to be Wary With IEO’s as They May Break Securities Law

The U.S Securities and Exchange Commission (SEC) published a warning from its Office of Investor Education and Advocacy, urging investors to be cautious when considering participation in initial exchange offerings (IEO).

In a statement from January 14, the SEC stated:

“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. As described below, IEOs may be conducted in violation of the federal securities laws and lack many of the investor protections of registered and exempt securities offerings.”

IEOs taking over the market

Just like the ICOs flooded the market in 2017, IEOs boomed in early 2019, as numerous projects came to cryptocurrency exchanges to introduce their tokens directly on their platforms.

Binance launchpad hosted IEOs of several projects at the beginning of 2019, one of which, Fetch.AI (FET) token, raised $6 million dollars and closed in 22 seconds.

The SEC trying to keep pace

The unfettered ICOs faced a major crackdown from the SEC in late 2018.

Over the past two years the regulator has chased down several ICOs for selling unregistered securities and applied penalties.

According to the announcement, the SEC also plans to undertake similar investigations of IEOs which will require registration with the agency, depending on the offering.

Also, the SEC stated that exchanges where the IEOs will be hosted might also need different approvals and licensure from the agency.

In addition, the commission noted that IEOs must be aligned with federal securities law, adding:

“It is a red flag if the IEO and its participants, including the online trading platform, do not address or discuss the applicability of the federal securities laws.”

The SEC warned investors to be cautious with IEOs, platforms and advertisers, boasting misleading registrations and approvals. “There is no such thing as an SEC-approved IEO,” the SEC post stressed.