Do Initial Exchange Offerings (IEOs) comply with the US Federal Securities Laws? The Investor Education and Advocacy arm of the SEC issues first IEOs warning to all crypto investors in the market. IEOs are relatively new, but the US regulator warns that investors need to do their due diligence before investing in any IEO.
15 January, 2020 | AtoZ Markets – The SEC has issued a warning about the risk associated with initial exchange offers or IEOs. The SEC Office of Investor Education and Advocacy advised investors to “be cautious when considering an investment in an IEO.” Because such offerings can be used to attract investors with the fake promise of high returns in a new investment space.
The SEC added that: “IEOs may be conducted in violation of federal securities laws. IEOs may also lack the investor protections of registered and exempt securities offerings.”
Be Cautious When Investing in an Initial Exchange Offering
Whether an IEO constitutes an offer of securities, the agency has drawn a line concerning its assessment. Since the circumstances in which the tokens are offered through an IEO could be considered securities. The SEC explained further:
“As in the case of ICOs, depending on the facts and conditions of the offering, the offering may include the offer and sale of securities. The IEO may be subject to the registration requirements that apply to offerings under federal securities laws.”
Among other things, registration means that the company offering the digital asset must provide investors with important information about:
- Information about the company itself
- Information about its businesses and activities
- Info about the digital asset offered
- Info about the terms of the offer
Do IEOs Comply with the US Federal Securities Laws?
Scams and Ponzi schemes use various methods to lure users while also avoiding the federal securities law. However, opportunistic fraudsters take advantage of evolving investment space around digital assets, crypto and ICOs to conduct fraudulent schemes. The development of IEOs presents a similar opportunity for fraudsters. Investors should be careful.
Especially since the regulations on IEOs are not 100% certain yet. Investors needs to be cautious. The agency noted:
“Any offering that claims to avoid federal securities laws is a red flag. Because it occurs on an overseas trading platform, but which otherwise allows people from the United States to invest. It is also a red flag if the IEO and its participants do not address or explain the applicability of the federal securities laws.”
Investors also should know that they may have no legal remedies in US courts against offshore or IEOs issuing on the platforms. However, it seems like the market is moving away from ICOs and gets into IEOs. In September, Coinbase’s head of institutional sales in Asia indicated that the crypto exchange startup is considering entering the IEO space.
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