The U.S. Securities Exchange Commission (SEC) on violations of securities laws

The U.S. Securities Exchange Commission (SEC) on violations of securities laws

The U.S. Securities Exchange Commission (SEC) reported in an alert to investors on 14 January that Initial Exchange Offerings (IEO’s) may be in violations of securities laws, and investors must exercise caution while choosing to invest in them.

Initial Exchange Offerings are similar to Initial Coin Offerings, but instead, they are initial offerings of digital assets to raise capital. The IEO’s have been on constant rage since 2019 as cryptocurrency exchanges took it upon themselves to directly offer the tokens from various projects on their platforms. They have recently seen a lot of development in the digital assets sector. They have been called a reformation over ICO’s since they directly take the offerings from companies and allow for immediate trading opportunities through trading platforms. As the SEC details, the risk posed by IEO’s happens when purported “exchange” platforms are not registered with the SEC and fraudulently behaves as if it complies with SEC standards and regulations.

The SEC states that if the IEO offered involves securities, the platform offering it needs to be registered with the SEC separately as a national securities exchange or operate as an alternative trading system (ATS). An ATS, in turn, needs to be a registered broker-dealer and comply with the requirements for legal operation. The SEC also calls it a red flag to invest in any IEO’s that do not address or discuss the applicability of federal securities laws and also if offshore IEO’s demand investments that don’t require SEC-compliance since it operates out of the U.S.

“There is no such thing as an SEC-approved IEO,” and investors urged to be careful when investing in IEO’s and related digital assets due to risks of falsified registrations and claims.

It is also to note that the SEC has looked down on digital assets and its trading in the past, with SEC Law Enforcement head John Reed Stark claiming that Bitcoin had no real value, and it was just currency made to used for criminal activities.