IEOs Are Not What They Claim To Be
The SEC is warning investors to steer clear of IEOs in that they could come from unregulated exchanges. If the exchange itself is not in compliance, this could lead to heavy problems for whoever’s willing to put money into it in that they will not receive investor protections from the SEC or fellow regulating agencies granted they lose funds or are subjected to data breaches.
The SEC has put out a document on its website describing the primary differences between ICOs and IEOs. Apparently, there are very few, but one major factor sticks out like a sore thumb: rather than being sold to investors directly, platforms sell IEOs where they can be traded.
The letter explains:
Initial exchange offerings (IEOs) are a recent development in the rapidly evolving digital asset space. IEOs are similar with initial coin offerings (ICOs) in that they are initial offerings of digital assets (e.g., coins or tokens) to raise capital. However, IEOs are being touted as an innovation on ICOs because they are offering directly by online trading platforms on behalf of companies – usually for a fee – to provide immediate trading opportunities for the digital assets… These online trading platforms, which are typically not registered with the SEC and which may improperly refer to themselves as ‘exchanges,’ may also claim to perform due diligence or other quality assessments of the IEOs… There is no such thing as an SEC-approved IEO.
Given that the platform engaging in the IEO is unregistered, the investor looking to get involved faces much risk. IEOs came about in 2018 under the guise of being a different entity from ICOs and were designed to assist offering platforms avoid SEC-based sanctions and rulings.
You Will Not Be Protected
The letter goes on to say:
Noncompliance with the federal securities laws means the IEO and/ or trading platform may be operating unlawfully and the investor and market protections and remedies these laws are intended to provide may be absent… You should carefully consider whether the company and the trading platform involved in the IEO has complied with federal securities laws… Be cautious if considering an investment in an IEO. Claims of new technologies and financial products, such as those associated with digital asset offerings, and claims that IEOs are vetted by trading platforms, can be used improperly to entice investors with the false promise of high returns in a new investment space. As described below, IEOs may be conducted in violation of the federal securities laws and lack many of the investor protections of registered and exempt securities offerings.