The US Securities and Exchange Commission is issuing a crypto alert to investors through its Investor Education and Advocacy division, warning people to be extremely cautious when dealing with initial exchange offerings (IEOs).
IEOs are essentially the sale of new crypto assets that are entering the market for the first time, administered on a cryptocurrency exchange. The federal regulator’s January 14th statement says investors should be especially careful to avoid potential scams.
“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.”
The SEC points out that IEOs may be violating US federal securities laws and might not offer standard investor protections that come with registered and exempt securities offerings.
Although IEOs are often promoted as an improvement over initial coin offerings (ICOs), where coins are sold directly to the public without an exchange involved, the SEC points out that IEOs are often not registered with the regulator.
The agency says investors should never rely on an exchange to perform due diligence and other quality assessments.
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