The US market regulator has warned investors about the hype in cryptocurrency-based intial coin offerings, which the watchdog claims have sometimes been used to convince potential victims to invest in scams.
The US Securities and Exchange Commission has issued a warning about digital coin offerings, telling investors they could be used to manipulate a company’s stock price.
The commission has been stepping up its scrutiny of offers and sales of digital assets, including “initial coin offerings” or “token sales.”
In a recent investor alert, the market watchdog warned that fraudsters could be using “the lure of new and emerging technologies to convince potential victims to invest their money” in publicly traded companies that promote ICOs.
The possible frauds, the SEC said, included market manipulation schemes involving publicly traded companies that claim to provide exposure to these new technologies.
Pump and dump schemes
The regulator noted that developers, businesses and individuals increasingly are using ICOs – also called coin or token launches or sales – to raise capital.
“While these activities may provide fair and lawful investment opportunities, there may be situations in which companies are publicly announcing ICO or coin/token related events to affect the price of the company’s common stock," the regulator said in a release.
The market watchdog also warned investors against falling for 'pump and dump' schemes, which manipulate a stock’s share price or trading volume by touting the company’s stock through false and misleading statements to the marketplace.
“Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a promoter will call using the same sort of pitch," it noted.
“Once these fraudsters 'dump' their shares for a profit and stop hyping the stock, the price typically falls, and investors lose their money.”
Last month, the SEC ruled that federal securities laws apply to the sale of new digital coins.
More recently, the commission suspended trading in four companies over their ICOs. Those companies include Canada-based First Bitcoin Capital, which has seen its market cap jump 43 per cent in one week and 6,072 per cent in the year to date.