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On January 14th, Office of Investor Education and Advocacy of the U.S. Securities and Exchange Commission (SEC) posted a message on its official website of an alert to caution investors from investing in initial exchange offerings via online trading platforms. IEOs are initial offerings of digital assets to raise capital, somewhat similar to initial coin offering.
IEOs are offered through online trading platforms directly on the behalf of companies, as to provide investors with instant trading opportunities for digital assets. According to the SEC, these online trading platforms are not usually registered on the SEC database and can improperly refer to themselves as exchanges.
The SEC further adds that investors are at risk of being enticed with false promises regarding high profits of new technologies and financial assets, including digital assets offerings and claims that initial exchange offerings have been approved by trading platforms. The SEC details in the post that IEOs might even be violating federal securities laws and might not provide investors with protection of registered and exempt securities offerings.
The post further states that investors should be aware before deciding to invest in an IEO, as they might involve the offer and sale of securities, similar to ICOs. Under federal securities laws, this would mean that IEOs have to be registered and meet the standard for the offerings. A proper registration requires the company to disclose the terms of the offering to investors.
Federal Securities Laws May Still Apply to Non-U.S.-Based Websites
Since federal securities laws are applicable to IEOs, many of them which average consumer has heard able might be offered by offshore entities. If an IEO is being offered to someone residing in the United States through online platforms such as websites of a digital trading platform that is not based within the country, the federal securities laws will still be applicable.
The SEC warns investors that investing in an initial exchange offering conducted on an overseas trading platform presents many risks as offshore trading platforms might not comply with regulatory scrutiny which might leave investors without important information such as the IEO issuer, digital asset information and arrangements between issuers and platforms which allows them to make their decisions about the benefits and disadvantages of investing in an IEO.
The post is concluded by the SEC by stating that investors should be aware of the lack of legal remedies in US courts for them against trading platforms from overseas or initial exchange offerings issued on the platforms.