The US securities and Exchange Commission (SEC) has issued a stark warning to investors about the risks of public stock scams that are using the current buzz around cryptocurrencies as a promotional tactic.
The investor alert, published on 28 August, notes that:
“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.”
The increasing use of ICOs by businesses to raise capital has led to a huge amount of media and investor attention in the practice. The SEC calls the majority of these activities ‘lawful investment opportunities’.
However, some companies are publicly announcing ICO’s or similar coin/token related events as a way of affecting the price of their common stock.
The SEC is prepared to suspend trading in stocks if it thinks that it will protect investors and the public interest.
Things that may lead to a suspension are:
- a lack of accurate and up-to-adte information about the company
- serious questions about the accuracy of company statements, such as press releases and reports
- questions about trading in the stock
With regards to ICOs, the SEC is urging investors to watch out for the following:
- companies with common stock trading claiming that its ICO is ‘SEC-compliant’ without providing detail on compliance with securities laws
- companies with common stock trading also purports to raise capital through an ICO
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