Ryan As if the risk over so-called “initial coin offerings” wasn’t high enough. Now, the Securities and Exchange Commission is warning investors of a new peril: companies that tout an upcoming “ICO” to inflate the price of their shares, and cash out when suckers buy in.
In case you’re unfamiliar, ICOs involve a company selling digital currency (a.k.a. coins or tokens) to the public in order to finance a new blockchain-based software application. While the tokens can be used within the application (when and if it’s finished), many people are treating them as a speculative investment.
A recent ICO mania has given rise to some blatant ripoffs in which companies take investors money but fail to build the promised blockchain application. But it’s also leading to more indirect scams—such as what the SEC warned about in a notice on Monday—and added to overall concern about ICOs: