Be Cautious If Considering an IEO or ICO Investment

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By Emily Zulz

The Securities and Exchange Commission recently issued an investor alert urging caution when considering investments in initial exchange offerings (IEOs) and initial coin offerings (ICOs).

“The past few years have seen opportunistic fraudsters take advantage of the quickly evolving investment space around digital assets, cryptocurrencies, and ICOs to conduct fraudulent schemes,” the alert states. “The development of IEOs provides a similar opportunity for fraudsters. Investors should be careful.”

IEOs, which are similar to ICOs, are initial offerings of digital assets — such as coins or tokens — to raise capital. IEOs are typically offered directly by online trading platforms on behalf of companies, usually for a fee.

The online trading platforms used for IEOs are typically not registered with the SEC and they may improperly refer to themselves as “exchanges.”

The SEC has stated that there is no such thing as an “SEC-approved IEO” and warns investors to beware of such dubious claims by IEO promoters.

“It is common for a fraudster to make false and misleading statements or exaggerated claims about regulatory approvals and oversight to lure potential investors,” the alert states.

The SEC also warns investors to be on alert if an IEO does not address whether federal securities laws apply. If an IEO or its trading platform does not comply with federal securities laws, certain protections may be absent.

The SEC suggests investors also should be cautious before investing in overseas IEOs. According to the SEC, investors should beware of any IEO purporting to avoid federal securities laws because it is on an overseas trading platform – especially U.S. residents are invited to invest.

“Be cautious if considering an investment in an IEO,” the alert states. “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.”

If you’ve been the victim of a fraudulent IEO scheme, our experienced securities attorneys may be able to help.

Our securities attorneys are part of the Morgan & Morgan Business Trial Group. The Business Trial Group is part of the largest contingency law firm in the nation, with more than 500 lawyers and 50 offices. Because we help investors recover their monetary losses on a contingency basis, we are only paid if we successfully recover money for you. Our securities attorneys have helped investors recover tens of millions of dollars of investment losses.