The SEC has issued its first warning regarding Initial Exchange Offerings (IEOs), potentially decreasing any future interest in cryptocurrency offerings on exchanges.
The SEC is urging investors to be careful about any “promises” made in regards to IEOs. This is what the US financial watchdog said to the general public:
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 has also stressed some very important facts about IEOs and how tokens issued in these IEOs can be considered “securities”, which would subject the tokens to applicable securities law.
In addition, exchanges offering IEOs may have to register with the SEC as a securities exchange or as an alternative trading system (ATS). However, all ATSes in the US need to be registered broker-dealers in order to comply with financial regulations in the country.
If an exchange offers IEOs, then this exchange may be qualified as a “broker dealer” and it will not only need to be registered with the SEC, but also become a member of FINRA.
As reported by press, these IEOs have been a way for different blockchain projects to raise money without having to go “above” the regulatory hurdles required for ICOs and STOs (security token offerings). However, the SEC has become cautious towards all manners through which there might be a scam or a way to defraud investors. It appears that IEOs are next on the SEC’s list.
While IEOs may not have been that popular or have not garnered the same “interest” from regulators, the SEC is currently changing that, so no “speculative” fund raising tool is immune from proper regulatory oversight