SEC Warns Investors About The Dangers of ICOs
It is no secret that Initial Coin Offerings (ICOs) are growing a lot since last year. Because of this, the US Securities and Exchange Commission (SEC) has decided to write an article advising the investors on the problems that ICOs can cause because they are not very regulated.
On the article, which explains that the risks of fraud and manipulation in ICOs are bigger because they are less regulated, the company talks about the three “Rs” of the ICOs: Risks, Rewards and Responsibilities.
According to the SEC, ICOs may or may not act as securities. In some cases, the companies are only selling utility tokens, which act as in-company currency and does not necessarily fall under SEC regulation. In case the ICOs are, in fact, securities, they have to register with the SEC and comply for the American regulations if they want to sell the tokens to American clients.
The commission states that you should ask questions before investing to know if the ICOs are regulated and legal and that, even if some companies say that they offer “utility tokens”, sometimes they can actually be considered securities, so take care.
SEC’s main argument against ICOs in general is that the investors are not protected. There are high chances that the ICOs might have substantial losses and suffer manipulation and, in case of theft or hacking, many times the investors have no resources at all to get their money back.
What The Investors Need To Know About ICOs According to The SEC
One of the main risks warned by the company is that many of these companies are not American and your money will go to other countries without you even knowing sometimes. Many companies also do not take any action against scammers and bad actors or even try to recover lost funds.
The SEC states that you should try to discover who is offering the ICOs and know if these are people that you should trust or not. Also, avoid investments that seem too good to be true. If some investment presses you to act quickly or promises unbelievable returns too easily, it might be a scam.
If you promote ICOs, you should be cautious on whether they fall under the regulations or not because you may be infringing the Securities Exchange Act of 1934 by advertising.
Always remember that most of the ICOs are not regulated but they should definitely be. Because of this, you can always see if the professionals are registered within the SEC and if they need to be before you actually start to invest in these companies.