The Securities and Exchange Commission of the US has come up with a guide for investors and market professionals about Initial Coin Offerings (ICO) on their website.
The first part of the guide describes five things about ICO’s that investors need to know. The first and the most important point illustrated is that ICO’s can be Security Offerings. Most ICO’s claim that they are utility tokens but regardless of what they claim they might be securities if they pass the Howey test which is a system used to determine whether an asset is a security.
The guide also warns the investors to be careful as many ICO’s have turned out to be scams. The last point urges the investors to question everything before investing.
Next, the guide elaborates 4 points in detail:
- Products can be sold and traded internationally.
- Research your financial professional.
- If an investment sounds too good to be true, be cautious.
- Understand how the product is traded.
Lastly, the guide gives some guidelines to market professionals who are conducting such ICO’s
Some ICO’s have outright promised specific returns to their investors which could potentially land them in a difficult position later and the SEC urges to use caution before promoting these coins and the way they are marketed.
The guide urges that the ICO’s have to keep in mind the investors before taking decisions and are responsible to protect the investors. If it is a platform which for trading digital assets then they have to be registered with the SEC.
The Chairman of the SEC recently had commented on an interview on CNBC that Cryptocurrencies like Bitcoin which are alternatives to the traditional currencies like the USD, Yen, Euro are not securities but most of the ICO’s are in fact securities as they pass the definition of a security. He also commented that the definition of a security will not be changed.
SEC News Tweeted:
Our guide to ICOs: https://t.co/U71pELmhOH
— SEC_News (@SEC_News) June 10, 2018
The SEC had also previously come up with a spoof website which even had a whitepaper (and some hilarious design). The website intends to educate investors about fraudulent ICO’s. Many ICO’s are raising Millions of dollars just with a whitepaper and even fake team members. Some ICO’s have even absconded after raising the money.
SEC Also tweeted:
Speaking of ICOs, have you seen this one: https://t.co/F9GqYVE4tq
— SEC_News (@SEC_News) June 10, 2018
SEC Chairman Says That Most ICO’s Are Securities And Bitcoin Is NOT
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