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Did You Invest in an Initial Exchange Offering (IEO)?

February 21, 2020 Blog

A couple of years ago, initial coin offerings (ICOs) burst onto the scene as a new and innovative way for the public to invest in cryptocurrencies. Individual investors seeking to profit from speculation in Bitcoin and other currencies flocked to ICOs, and they brought substantial profits to the companies that issued the offerings. At the time, the U.S. Securities and Exchange Commission (SEC) warned of fraudulent scams involving ICOs; and, while many of these offerings were legitimate (and legitimate ICOs remain on the market today), many investors were forced to hire investment fraud attorneys to help them recover their losses.

SEC Warns of Fraudulent Investment Loss Risks Linked to IEOs

Now, the SEC is warning of similar risks related to a new type of cryptocurrency investment, known as an initial exchange offering (IEO). As the SEC stated in a recent Investor Alert:

“Initial exchange offerings (IEOs) are a recent development in the rapidly evolving digital asset space.  . . . IEOs are being touted as an innovation on ICOs because they are offered directly by online trading platforms on behalf of companies—usually for a fee—to provide immediate trading opportunities for the digital assets. These online trading platforms, which are typically not registered with the SEC . . . may also claim to perform due diligence or other quality assessments of the IEOs.”

Similar to ICOs, while there is nothing inherently unlawful or fraudulent about an IEO, the speed with which they are being brought to market – often by individuals who do not have a clear understanding of the U.S. securities regulatory system – presents some risks for investors. Even in a situation where the person or company offering an IEO does not have any fraudulent intent, there are still various issues that can put investors at high risk for substantial investment losses.

Many IEOs are Not Registered and Lack Critical Investor Protections

Also similar to ICOs, many IEOs are subject to securities registration with the SEC. The registration process is intended, among other things, to ensure that prospective investors have access to accurate material information about their investments. However, the SEC warns that, in many cases, IEOs are being offered without registration. Not only does this mean that these IEOs violate federal law, but it also means that investors are not getting the information they need to make informed decisions.

In fact, in many cases, IEO offerors’ lack of understanding of federal securities laws means that they are violating federal securities advertising and disclosure laws as well.

If you have suffered investment losses after buying into an IEO, you should discuss your situation with an investment fraud attorney promptly. You may be entitled to compensation for investment fraud, but you may need to act quickly in order to preserve your ability to recover your fraudulent losses.

Speak with an Investment Fraud Attorney at Zamansky LLC

If you would like more information about recovering your losses from a fraudulent IEO, we encourage you to contact us for a free initial consultation. To speak with an investment fraud attorney at Zamansky LLC in confidence, call 212-742-1414 or tell us how we can help online now.