The SEC has published an update regarding its view on IEOs. According to the warning, these IEOs, which take place on crypto exchanges are the same as ICOs and they are thus subject to US securities laws. In the latest investor alert, it posed and answered various questions regarding what US citizens should consider when they invest in an IEO. This is even when an exchange promises its users that it has conducted a quality assessment of the project.
According to the SEC, claims by exchanges that they have vetted a trading platform can be used to entice investors with a false promise of high returns in the investment. However, the main point the SEC was driving home was that just like ICOs, these IEOs violate US securities laws. As a result, they do not offer any investor protections.
The SEC said that any online platform that wishes to offer investors such an investment tool has to register with them separated as a securities exchange. Alternatively, they could apply for an exemption. For instance, they could operate as an Alternative Trading System that has a broker-dealer license.
On whether US citizens could invest in IEOs, the SEC warned that they would still be subject to US securities laws. Besides that, if things do not work out, investors can expect that they may not receive any legal protection under US laws. For instance, they might not be able to sue issuers of fraudulent IEOs in US courts since they are not regulated.
The new IEO warning by the SEC is long overdue. IEO sale started over a year ago and many expected the SEC to react to the sector much sooner. Thus far, there has been more failure than success for the investors of such products.
One example of failure is the K.im IEO, which was valued at $8 million. Binance’s IEO platform, Launchpad IEO later suspended the IEO. The exchange cited regulatory concerns as the main reason for the suspension. The Binance Launchpad has also blamed manipulation as the reason why the price of Elrond (ERD) has remained low at just $0.001645 since the IEO.