The U.S. <a href="https://www.sec.gov/">Securities and Exchange Commission</a> (SEC) has warned crypto investors about Initial Exchange Offerings (IEO). While the alert is not an official statement regarding regulatory policy, it reflects the perspective of the American market regulators on IEOs. Currently, several crypto exchanges are avoiding American investors.
<h2>Crypto Investors Warned About IEOs</h2>
Through its Office of Investor Education and Advocacy, the Commission advised investors to stay careful before they invest in initial exchange offerings. The warning highlighted the fact that IEOs are simply like initial coin offerings (ICOs) because they both offer digital assets to raise capital. However, IEOs are often painted as an innovation based on their direct link with trading platforms. The digital platforms may claim to conduct a quality assessment as well as due diligence on the projects.

“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. IEOs may be conducted in violation of the federal securities laws and lack many of the investor protections of registered and exempt securities offerings,” the SEC warned.
<h2>IEOs to Comply With Securities Laws</h2>
The commission further stated that based on the circumstances, IEO projects may participate in offering and selling securities. According to the <a href="https://www.cryptoknowmics.com/crypto/sec-charges-man-behind-fraudulent-crypto-mining-scam/">SEC</a>, this implies that IEO projects should be registered under U.S. federal securities laws. The online trading platforms on which such projects operate should also be registered with the Commission as a national securities exchange or an ATS (Alternative Trading System) in order to operate legally in the U.S. Besides, if the platform acts as broker or a dealer, it should be registered with the SEC and become a member of FINRA too.

“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…In addition, be careful if the promoter of the IEO or the digital trading platform hosting the IEO states that they are approved or registered with the SEC. There is no such thing as an SEC-approved IEO. It is common for a fraudster to make false and misleading statements or exaggerated claims about regulatory approvals and oversight to lure potential investors,” the alert claims.

The SEC further highlighted that several IEO projects come from platforms outside the United States. However, if the IEO targets crypto investors in the U.S., then the U.S. securities laws still apply. The regulator added that investors should also beware of IEOs operating outside the country because that, in itself, is a red flag.

SEC Warns Crypto Investors on IEOs

Tony is a writer and a crypto enthusiast. He discovered cryptocurrency in 2017 and believes it's one of the ways to make the world a better place.  A graduate of creative writing, he synthesizes blockchain and cryptocurrency topics in a way he only can. Reach him on Twitter @Wordsvan

SEC Warns Crypto Investors on IEOs

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