- SEC recently release a post highlighting instructions on the Initial Coin Offering (ICO).
- The SEC warns the investors to beware of the false promises of high returns and future profit.
- The US Security and exchange commission also mentioned that ICOs sometimes termed as vehicles for scams and frauds and maximum of these face failures.
SEC is US federal body, has always been keeping up with the market trends and is working for the betterment of its people. The SEC protects investors and is responsible for maintaining the fair and orderly functioning of efficient markets.
Recently a few days ago, after the firm announced the investors’ guidelines for IEO and while now they release their instructions for the ICO.
SEC mentioned there had been an increased use of Initial Coin Offerings or ICOs. They see it as an efficient way of raising capital and also a way of investment, which is not entirely wrong, but what they fail to understand is that these ICOs may also bring the risk of fraud and manipulation. SEC says this could probably occur as this is less regulated than the traditional capital markets.
SEC’s Stance on ICO
As per SEC, ICO is a type of funding based on cryptocurrencies. It is mostly like crowdfunding but can also be practised by private institutions for a private ICO. In an ICO, crypto-assets sold to people in the form of a token which could be exchanged for a legal tender or a more stable digital asset such as ETH or BTC.
Earlier the alert from the body regarding the IEO or the Initial Exchange Offerings was made on 14th Jan 2020. The SEC warns the investors to beware of the false promises of high returns and future profit which these exchanges may offer for they are not registered under the SEC and may lack investor protections.
There had been numerous failures of the ICO plans and data suggests that most of the ICOs do not even survive a lifespan of 4 months. Also, these ICOs sometimes termed as vehicles for scams and frauds and maximum of these face failures. Though these facts are well versed with the investors, people still invest in these assets.
The SEC says that “While some ICOs may have endeavoured at honest investment opportunities, many may be frauds.” It also means that one must not invest in anything which could result in the loss of their hard-earned money and thus think twice before investing in any ICO.