US SEC Warns Against Initial Exchange Offerings

The US Securities and Exchange Commission (SEC) has published an investor alert warning the public against Initial Exchange Offerings (IEO).

An IEO is a token sale supervised by a crypto exchange. IEOs are available exclusively to the exchange’s users, although some IEOs may take place in several exchanges. Just like Initial Coin Offerings (ICO), IEOs allow investors to get new tokens while raising funds for promising crypto projects.

The SEC said that while IEOs are being touted as an innovation on ICOs, investors should take caution because crypto exchanges are typically not registered with the SEC and may claim to perform due diligence or other quality assessments of the IEOs.

“Be cautious if considering an investment in an IEO,” the regulator said. “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. As described below, IEOs may be conducted in violation of the federal securities laws and lack many of the investor protections of registered and exempt securities offerings.”

If an IEO involved the offer and sale of securities, the SEC said it will be subject to registration requirements that apply to offerings under the federal securities laws, which means the company offering the digital asset has to provide important disclosures about itself, its business, the digital asset offered, and the terms of the offering to investors.

“Noncompliance with the federal securities laws means the IEO and/or trading platform may be operating unlawfully and the investor and market protections and remedies these laws are intended to provide may be absent,” the agency said. “You should carefully consider whether the company and the trading platform involved in the IEO has complied with federal securities laws.”

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