Initial Coin Offerings (ICOs) are everywhere in the unregulated cryptocurrency space and have already proven themselves to be an incredibly effective means of crowdfunding projects with digital currency. Sometimes, however, ICOs are little more than fraudulent scams aiming to liberate investors from their hard-earned Ethereum (ETH). Because of this, the U.S. Securities and Exchange Commission has provided a list of ‘Things You Need to Know About ICOs.”
ICOs May Be Securities
First and foremost, the SEC wants investors to know that Initial Coin Offerings are — in many cases — securities. As such, these specific ICOs must operate under the rule of federal securities laws or risk invoking the SEC’s wrath. Notes the regulatory body:
ICOs, based on specific facts, may be securities offerings, and fall under the SEC’s jurisdiction of enforcing federal securities laws.
Some ICOs Need to Register
Those ICOs which do qualify as securities must, therefore, legally register with the SEC — whether they want to or not. Explains the SEC:
ICOs that are securities most likely need to be registered with the SEC or fall under an exemption to registration.
If It Looks Like a Token and Smells Like a Token
Of course, many ICOs would rather not have to register with the SEC and, thus, change the naming or structure of their tokens to appear as something else. In most cases, however, they still qualify as a security. Says the SEC:
ICOs, or more specifically tokens, can be called a variety of names, but merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security.
Your Capital Is at Risk
Cryptocurrency is still often called a ‘Wild West,’ in which losses are rarely covered and fraudulent activity runs rampant. As such, it is important to always do your own research, exercise a correct amount of skepticism, and carefully manage your investments. As noted by the SEC:
While some ICOs may be attempts at honest investment opportunities, many may be frauds, separating you from your hard-earned money with promises of guaranteed returns and future fortunes. They may also present substantial risks for loss or manipulation, including through hacking, with little recourse for victims after-the-fact.
Reach Out to ICOs
Finally, if you’re seriously considering investing in an ICO, the SEC recommends you reach out to the individuals running the project with questions. If they don’t give you clear answers, they probably aren’t capable of launching a successful product. Notes the SEC:
If you choose to invest in these products, please ask questions and demand clear answers.
What the SEC didn’t include in its friendly list, however, is a stern reminder that those getting involved in ICOs are also putting themselves at legal risk. Only last week, SEC Chairman Jay Clayton stated, “Abide by the law. We are watching. Others are watching.” Wonder why the regulators left that one off the list?
What do you think of the U.S. Securities and Exchange Commission’s advice? Let us know in the comments below!
Images courtesy of Shutterstock, Bitcoinist archives, and AdobeStock.