This week, the US Securities and Exchange Commission (SEC) warned investors against participating in IEO (Initial Exchange Offers).
In its new publication, the agency emphasizes that such crowd sales are held on exchanges that “do not have appropriate registration with government bodies”, may be conducted in violation of federal securities laws and may not have traditional means of protecting investors’ rights for registered and exempted securities offers.
What is IEO?
Initial exchange offers (IEO) differ from the usual ICO (Public Token Offer) by the role of exchanges, which, in essence, take responsibility for the decency of issuers and undertake to list IEO tokens on their trading platforms.
Is IEO an offer of securities?
The SEC notes that there are many important issues that investors should know before investing in IEO.
As in the case of ICOs, depending on certain characteristics of assets and terms of sale, the offer of IEO tokens can be regarded as a sale of securities, and if they are recognized as such, the SEC will have questions for the issuer and the legality of the investment rounds with all the relevant ensuing circumstances.
“Any proposal aimed at avoiding federal securities laws, because it is carried out on a foreign trading platform while allowing US residents to invest in the offered product is a violation of the law,” the SEC emphasized, “if the organizers of IEO state that their proposal is approved/registered in the SEC – do not believe it. Fraudsters often make false and misleading statements to attract potential investors. ”
What will happen after IEO?
While the IEO boom that has begun today is already waning, without reaching the scale of ICO popularity in 2017, the position of a key US regulator regarding this kind of token sale is likely to result in a further decline in IEO.
Therefore, the next model for attracting investment in the digital space may be the Token Security Offer (STO), based on more stringent regulation.