Over the last year the SEC, U.S Securities, and Exchange Commission have been highly engaged with issues surrounding cryptocurrency and Initial Coin Offerings (ICOs).
Jay Clayton, chairman of the SEC, was a keynote speaker yesterday morning at the Practicing Law Institute’s 49th Annual Institute on Securities Regulation in New York City. He devoted a portion of his remarks to his views of ICOs and warned that ICO trades are susceptible to ‘fraudulent practices’ because of the “distinct lack of information about many online platforms that list and trade virtual coins or tokens.”
Clayton proceeded to elaborate more on this by saying:
“Through these platforms, individual investors can buy and sell tokens in the secondary market using virtual or fiat currencies. But investors often do not appreciate that ICO insiders and management have access to immediate liquidity, as do larger investors, who may purchase tokens at favorable prices.”
In his full comments, he describes the tokens issued for these startups as favorable for misconduct and mentioned them closely to penny stocks and hidden fees on investment products. Clayton is worried that token offerings may be susceptible to ‘pump-and-dump’ schemes.
The chairman described these ICOs and penny stocks as “topics that have proven over time to be fertile ground for fraud on investors,” although he added further policy is necessary on these issues.
With their more recent engagement in the cryptocurrency space, the SEC issued a public statement last week warning individuals about taking investment advice from celebrities, who potentially are receiving compensation for hyping certain token offerings via their personal social media pages. Around the same time, the SEC’s Office of Investor Education and Advocacy (OIEA) urged the public “not to make investment decisions based solely on celebrity endorsements.”
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