On Tuesday, January 14, 2020, the U.S. Securities and Exchange Commission (SEC) sent an Investor Alert email regarding Initial Exchange Offerings (IEOs) and a warning. In short, IEOs are dangerous and unregulated. This is a shocker to no one, including the SEC. What is disappointing is that they didn’t send it out a year ago when IEOs started popping up as the new Initial Coin Offering 2.0. Something I preached about on stage during Blockchain World Conference in July of 2018 that emergence took only a matter of time to be publicized. Well, here we are. I’ve had several current and potential clients inquire about these types of offerings. While I do believe this model has significant legs, remember it’s effectively an Initial Public Offering– just like what is conducted on the traditional capital markets. But the problem, as always, comes down to regulations. The SEC has known about these damn things for quite some time. I can’t tell you how, but they have. Why did they wait until now to mention it? It’s especially frustrating since crypto Twitter and crypto traders don’t care (nor should they). They are in it for the speculation, but the people who should care include everyone working on true digital securities offerings as well as the startups and companies that are trying to use them in place of the traditional paperwork.
IEOs muddy the waters because they are not registered with the SEC Initial Public Offerings (IPOs). Even some of the best international exchanges that are clearing these listings aren’t compliant with SEC regulations and U.S. federal law. So, what does that lead to? More enforcement actions. More news about how blockchain and “cryptocurrencies” are “scams.” No company attempting to raise funds needs to deal with the repercussions of an enforcement action when their business is so new and fragile. This is incredibly frustrating given all the hard work that Securitize, Paxos, Harbor, KoreConX, and others have invested toward regulated solutions for years.
We know we have a long way to go – everyone involved in blockchain knows the road is long, but it is very, very much worth it as we see the flaws in capital raising and the capital markets. We will win because the technology is superior, and it just makes sense; but that’s not enough. We, collectively as an industry, must remain vigilant and call BS when we see it. Fight the good fight. Those who are conducting regulated IEOs under the laws of their applicable jurisdiction should call out those who aren’t. Companies that have been burned by IEO listings should take to Medium or, God forbid, Twitter, and call out the problems (after consulting with counsel, of course). We need to fix these issues as an industry and bring the problems to light. If we don’t, we are no better than the systems we are trying to improve or the scams of the past.
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