SEC Warns of ICO Schemes After Suspending 4 Firms

The U.S. Securities and Exchange Commission (SEC) has issued a warning about companies making Initial Coin Offering (ICO) claims. It warns of schemes including pump-and-dump and market manipulation as well as points out how companies may use ICOs to boost their stock prices. The warning follows the trading suspension of four companies’ shares by the Commission.

Also read: SEC Suspends Trading of Bitcoin Firm’s Shares After 7000% Price Jump

SEC’s Warning

The SEC’s Office of Investor Education and Advocacy on Monday issued a warning to investors “about potential scams involving stock of companies claiming to be related to, or asserting they are engaging in, Initial Coin Offerings (or ICOs).” The Commission wrote:

These frauds include ‘pump-and-dump’ and market manipulation schemes involving publicly traded companies that claim to provide exposure to these new technologies.

“There may be situations in which companies are publicly announcing ICO or coin/token related events to affect the price of the company’s common stock,” the SEC detailed. Therefore, the trading of such stocks may be suspended “to protect investors and the public interest,” the agency added.

Some circumstances that could lead to the suspension of trading include a lack of current, accurate, and adequate information about the company. In addition, questions about the accuracy of publicly available information as well as insider trading and potential market manipulation can also lead to trading suspensions.

4 Recent Trading Suspensions

The SEC also revealed on Monday that it has recently suspended the trading of four companies’ shares for making “claims regarding their investments in ICOs or touted coin/token related news.” The four companies are First Bitcoin Capital Corp., Ciao Group, Strategic Global, and Sunshine Capital.

First Bitcoin Capital Corp

News.Bitcoin.com recently reported on the suspension of First Bitcoin Capital Corp’s shares after they rose almost 7000%. In July, the company announced that its subsidiary Coinqx Exchange Ltd acquired tokens called “the Internet of Money” which would eventually trade under the symbol XOM. The company says that it would allow a buyback at a set rate of 2 shares for 1 XOM token.

Ciao Group Inc

Ciao Group, which has changed its name to Numelo Technology, had planned an ICO for later this year. However, the SEC suspended the trading of the company’s shares on OTC Markets from August 10 to 23. The shares still have not resumed trading at press time.

Strategic Global Investments Inc

Strategic Global Investments revealed in July that it intends to sponsor over 60 Counterparty cryptocurrencies which it claims are fully SEC compliant. The first one will be the tokenized asset Troptions, expected this fall. However, the SEC suspended the trading of the company’s shares from August 4 to 17, and the U.S. Financial Industry Regulatory Authority (FINRA) also independently requested some information from the company. Its shares have not resumed trading at press time.

Sunshine Capital Inc

Sunshine Capital’s shares were suspended from trading from April 12 to 26, due to questions about “the liquidity and value of the company’s assets, namely Dibcoins.” A few days after the suspension, the company was converted into a private one. Its shares have not resumed trading at press time.

ICOs Subject to Federal Securities Laws

In July, the SEC declared in a report that Dao tokens are securities and ICOs are subject to federal securities laws. However, soon afterward, 20 new ICOs were reportedly announced.

Nonetheless, the SEC’s warnings were not ignored. A number of cryptocurrency exchanges responded by reviewing their listings and policies. Bitfinex, for example, announced its exit from the U.S. Market, citing the strict regulatory environment. “Bitfinex is taking the proactive step of barring U.S. customers from trading certain digital tokens that may be deemed securities in the eyes of the SEC,” the exchange noted.

Shapeshift announced that “in light of the SEC’s statements, we will need to adapt our service offering to ensure it’s not mischaracterized as a ‘securities exchange’, adding that “we may need to delist some types of tokens from the platform.” Poloniex responded by stating that “as part of our compliance processes, we periodically assess listed tokens, and some may end up delisted as a result.”

What do you think of the SEC’s warnings and the suspensions? Let us know in the comments section below.

Images courtesy of Shutterstock, SEC, and FINRA

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