The US Securities and Exchange Commission (SEC) today warned investors against the hype around cryptocurrency-based initial coin offerings (ICO) which, according to the regulator, are sometimes used to “convince potential victims to invest their money in scams.”
ICOs, also known as token sales, have become a popular way for startups to raise funding and a lucrative investment opportunity for investors. However the SEC considered it necessary to caution the public about the risks associated with this form of capital raising, reminding investors that scams are rampant and that the practice is still unregulated.
The SEC’s announcement appears to be a clear shot across the bow for publicly traded companies that are trying to artificially inflate their stock price through ICOs. The agency’s alert primarily focuses on this phenomenon, rather than unregulated providers that sell their tokens without regulatory oversight.
Still, the announcement made it clear that the SEC could decide to go after other participants too, including the cryptocurrency exchanges.
Following its investigation, the agency said on Tuesday: “Fraudsters often try to use the lure of new and emerging technologies to convince potential victims to invest their money in scams. These frauds include ‘pump-and-dump’ and market manipulation schemes involving publicly traded companies that claim to provide exposure to these new technologies.”
As such, the SEC advised the public to exercise due diligence to understand the risks associated with ICOs and investment schemes involving digital tokens.
The agency recently noted the emergence of ICOs among the companies that it regulates.
Last week, it temporarily suspended trading in shares of First Bitcoin Capital, an OTC-traded Canada-based company that has seen its market capitalization grow 43% in one week and 6072% year to date. Before this, the watchdog suspended another company distantly tied to the cryptocurrency industry, temporarily halting trading in shares of CIAO Group, citing concerns over the Nevada technology company’s planned ICO.
“The SEC recently issued several trading suspensions on the common stock of certain issuers who made claims regarding their investments in ICOs or touted coin/token related news. The companies affected by trading suspensions include First Bitcoin Capital Corp., CIAO Group, Strategic Global, and Sunshine Capital,” the agency said.