IT Pro is supported by its audience. When you purchase through links on our site, we may earn an affiliate commission. Learn more

SEC chairman warns investors to be wary of ICOs

Investors should act with "extreme caution" over initial coin offerings, chairman says

blockchain

The US Securities and Exchange Commission (SEC) has warned investors to be wary if they're putting money into cryptocurrencies and initial coin offerings (ICOs), pointing out the risks and advising them to do so with "extreme caution".

Saying there's greater opportunity for fraud and manipulation because ICOs aren't registered with the SEC, chairman Jay Clayton told investors to "ask questions and demand clear answers".

ICOs see people launch new cryptocurrencies in the hope people will buy up the cryptocurrency tokens to raise capital for the businesses, typically on the promise that the token will appreciate in value once the business is launched and expands. 

But in a public statement, Clayton said none of these ICOs have registered with the SEC as securities (something like a stock, that represents the value of someone's investment), and told potential investors: "If an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost."

This was particularly true with ICOs often transferring money overseas, he said, making it harder for SEC to pursue bad actors.

His warning comes in a week that saw Bitcoin's market value soar past $16,000 and debut on a futures market, showing its success as a commodity, but making it difficult to use as a currency, with gaming platform Steam dropping support for it due to its fluctuating value.

"Just as the SEC has a sharp focus on how US dollar, euro and Japanese yen transactions affect our securities markets, we have the same interests and responsibilities with respect to cryptocurrencies," said Clayton.

"This extends, for example, to securities firms and other market participants that allow payments to be made in cryptocurrencies, set up structures to invest in or hold cryptocurrencies, or extend credit to customers to purchase or hold cryptocurrencies."

Clayton also had advice for those creating ICOs, or for accountants and lawyers helping to do so, arguing that ICOs are securities, whatever they might say about using distributed ledgers to record transactions differently to the way a typical investment is recorded.

"Replacing a traditional corporate interest recorded in a central ledger with an enterprise interest recorded through a blockchain entry on a distributed ledger may change the form of the transaction, but it does not change the substance," he said.

Picture: Bigstock

Featured Resources

Meeting the future of education with confidence

How the switch to digital learning has created an opportunity to meet the needs of every student, always

Free Download

The Total Economic Impact™ of IBM Cloud Pak® for Watson AIOps with Instana

Cost savings and business benefits

Free Download

The business value of the transformative mainframe

Modernising on the mainframe

Free Download

Technology reimagined

Why PCaaS is perfect for modern schools

Free Download

Recommended

What is cryptocurrency mining?
cryptocurrencies

What is cryptocurrency mining?

27 May 2022
IMF urges El Salvador to remove Bitcoin as legal tender
cryptocurrencies

IMF urges El Salvador to remove Bitcoin as legal tender

26 Jan 2022
El Salvador announces plans to build a 'Bitcoin city' at the foot of a volcano
cryptocurrencies

El Salvador announces plans to build a 'Bitcoin city' at the foot of a volcano

22 Nov 2021
Cryptocurrency: Should you invest?
cryptocurrencies

Cryptocurrency: Should you invest?

27 Oct 2021

Most Popular

How to boot Windows 11 in Safe Mode
Microsoft Windows

How to boot Windows 11 in Safe Mode

7 Jun 2022
Delivery firm Yodel disrupted by cyber attack
cyber attacks

Delivery firm Yodel disrupted by cyber attack

21 Jun 2022
Swift exit: How the world cut off Russian banks
finance

Swift exit: How the world cut off Russian banks

24 Jun 2022