New SEC Alert: IEO Risky for Investment

On January 14, 2020, the US Securities and Exchange Commission (SEC) issued a warning to investors regarding the initial exchange offerings (IEO). According to the Commission, IEO may have a number of “red flags”, which are worth paying attention to.

After the SEC introduced a number of fines against the growing list of initial coin offerings (ICOs) for violating security laws, initial exchange offerings began to appear on the market. IEOs offer the token sales not directly to investors, but through a partnership exchange of digital assets, where only investors with accounts of this exchange can participate in the token sale. Many see the advantage of IEO in that they manage to avoid regulatory validation.

However, today the Commission has officially stated the opposite and recalls that the SEC did not register any IEO. Consequently, initial exchange offering may be held in violation of federal securities laws and do not have any means of protecting investors.

The SEC stated that the exchanges hosting IEO may also require several forms of approval and licensing by the Commission. Thus, the SEC rhetoric suggests that IEO is just a false temptation in the new investment space, which replaced the ICO and promises high profits.

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