US Securities and Exchange Commission Warns Investors Against IEOs


Securities and Exchange Commission Office
of Investor Education and Advocacy has issued a warning notice to the investors
to remain vigilant towards Initial Exchange Offering (IEO) projects.
The cautionary notice released few
guidelines about how the IEOs are similar to ICOs but are often advertised as
safer than ICOs as they are being offered directly through the trading
platforms.
How the capital raising methods have
changed in the past years?
Capital raising methods have witnessed a
significant change in the last couple of years. Considering the cryptocurrency industry,
2017 to 2019 have observed various methods of capital generation. This industry
has been offering ICOs, STOs, DSOs, and Initial Exchange Offerings (IEO).
ICOs have been deprecated a lot because of numerous
frauds associated with them in the past years.
With certain alterations, IEOs were
replaced by ICOs before investors moved to STOs as the IEOs are considered
more secure than ICOs because of their legitimate status and compliance
under regulatory norms.
However, as per the Securities and Exchange
Commission (SEC), they are not fully secured and thus it has issued a warning
notice to protect the interests of investors who already have invested or are willing
to invest in the IEO projects.
The SEC Warning
The Warning clearly indicates that there is
no such thing as an approved IEO. SEC states that several IEO
projects are selling their securities intentionally or unintentionally as
utility tokens.
Excerpts from the notice states:
1) Project is Registered under SEC
or not?
As per the SEC, the IEO may offer and sell
securities, this means “IEO may be subject to registration requirements that
apply to offerings under the federal securities laws. Registration means that
the company offering digital asset has to provide important disclosures about
itself, its business, the digital asset offered, and the terms of the offering
to investors.”
2) Is the platform
a Securities Exchange?
If the IEO involves securities, the
involved online platform from which they are offered should be registered with
the SEC as a national Security exchange or alternative trading system (ATS) to
operate legally under US jurisdiction. The platform may also be acting as an
intermediary broker or dealer, which needs to be registered as well along with
FINRA membership.
3) Scrutinize the IEO Project carefully
before Investing
SEC further warns that the investors might
get lucrative offers about the new technologies and financial products
associated with digital asset offerings. And hype that IEOs are evaluated by
trading platforms. The investors might be misled by false promises of handsome
returns in the new investment projects. The IEO projects might have violated
certain Federal security laws and may lack necessary investors’ protection
measures.
4) Ventures outside the US need Approval
from SEC
The SEC stated that the IEO projects which
are functioning out of the US and are offering IEOs within the US boundaries
are still liable to follow the securities laws of the US. Offshore trading
platforms may mislead the investors by providing them illusory information
about the IEO issuer, digital assets offered that may mislead them to invest in
particular IEO
The Alert has been issued to the investors
that they should be vigilant towards the IEO issuers and that the US Court
might not provide them legal remedies if they are duped by the trading
platforms.
More about the Securities and Exchange Commission
(SEC)
The Securities and Exchange Commission is an
independent regulatory body of the US government which protects investors’
interests, monitors regulatory affairs of security markets, crypto assets and
enforce laws to regulate the industry.
SSC is currently headed by Chairman Jay
Clayton. From the last couple of years, the SEC has been meticulously
monitoring the ICO, STO and IEO projects and has been taking stringent action
against the fraud projects. Recently it has proposed various amendments
including the definition of accredited investor.
#SEC #ICO #STO #IEO #Securities #JayClayton

Jayashree Ingle
CBW - External Analyst
INDIA