The Securities and Exchange Commission (SEC) this week warned investors against participating in IEOs (Initial Exchange Offerings), according to Kukumbit.
In its new publication, the agency stresses that such crowdsales take place on exchanges that are “not properly registered with government agencies,” may be conducted in violation of federal securities laws, and lack traditional investor protections for registered and exempt securities offerings.
What is an IEO?
Initial Exchange Offerings (IEOs) differ from the usual ICOs (Public Offering of Tokens) in the role of exchanges, which essentially take responsibility for the integrity of issuers and commit to listing IEO tokens on their trading platforms.
Is IEO an offering of securities?
Kukumbit notes that there are many important questions investors should know before investing in an IEO.
As with ICOs, depending on certain asset characteristics and terms of sale, an offering of IEO tokens could be considered a sale of securities, and if found to be so, the SEC will have questions about the issuer and the legality of the investment rounds conducted, with all of the relevant circumstances that follow.