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US SEC warns investors on Initial Exchange Offerings

By Yana Berman

Commission says IEOs might violate securities laws and lack investor protection

Image: AP Photo

The US Securities and Exchange Commission (SEC) has issued a warning about Initial Exchange Offerings (IEOs), a new type of token offering that is gradually replacing ICOs.

The SEC says investors should be cautious before considering participation in an IEO. The commission believes that claims of new technologies and financial products related to digital assets offerings might be "used improperly to entice investors with the false promise of high returns in a new investment space".

Moreover, the SEC says IEOs might violate federal securities laws and lack the required investor protection.

IEOs were first mentioned in early 2019 when the extremely popular ICOs faced prosecution in various jurisdictions across the world. The SEC claimed ICOs could involve fraud and hit multiple coin offerings with penalties.

IEOs are a new type of an offering where the tokens are distributed not by a particular project, but by a crypto exchange. Investors buy their tokens directly on the platform. Coins can be traded as soon as the IEO is finished.

However, the SEC does not seem satisfied with the security of the new scheme. The commission urges that some IEOs will have to be registered via the regulator.

In addition to that, the SEC believes it is "a red flag" if the IEO and the associated online platform do not mention the applicability of the federal securities laws.

SEC has recently outlined its priorities for the year, including its attitude towards digital assets. The commission stressed the risk represented by various assets and promised to examine market participants in this space.

FURTHER READING: SEC outlines crypto priorities for 2020

FURTHER READING: SEC charges crypto scammer who raised $3.5m from investors

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