Claudia J. McDowell, Poole & Shaffery, LLP
At first glance, one would never consider a coin to be a security. Most people think of a coin as a form of currency that we use every day in America — quarters, dimes, nickels, even pennies. We certainly do not expect the Securities and Exchange Commission (the “SEC”) to regulate coins.
However, in the new age of cryptocurrencies, there are situations in which what at first may look like just a coin may actually be considered a security. Cryptocurrency is basically e-money. Some of those most recognizable cryptocurrencies are Bitcoin and Ethereum
With all the buzz and hype over cryptocurrencies, it was inevitable that lots of people would want to get in on the action.
Overnight, companies have been started for the purposes of conducting Initial Coin Offerings (ICOs) and many have raised millions, and even billions, of dollars from investors.
Many times, these ICOs do not comply with federal securities laws. As a result, in the past few years, the SEC has brought enforcement actions against several fraudulent offerings and has stopped the trading in several ICOs.
If you want to invest in an ICO, or any security investment for that matter, the following are some steps you should take to protect yourself:
If an offering “guarantees” high investment returns — run! There is no such thing as guaranteed high investment return.
If it sounds too good to be true, it is! Do not invest — use your common sense. Remember, high returns in the past do not mean high returns in the future.
Know from whom you are purchasing — see if they are licensed by the SEC. If they are not, know that you will likely have no recourse against them if you lose your money.
Check to see if the offering is registered with the SEC – if it is not and you are not an accredited investor, chances are the offering may not be in compliance with federal or state securities laws. If it is alleged to be a crowdfunding offering, check to make sure it is being done in compliance with the crowdfunding laws.
Claudia McDowell is a Partner in the law firm of Poole & Shaffery, LLP. Ms. McDowell practices corporate, securities and commercial law and is highly skilled in mergers and acquisitions and transactional negotiations.