SEC Issues Investor Alert On Initial Exchange Offerings

On January 14, 2020, the Securities and Exchange Commission’s (“SEC”) Office of Investor Education and Advocacy issued an Investor Alert urging investors to use caution before investing in “initial exchange offerings” (“IEOs”) through online trading platforms.¹ This alert represents the second time the SEC issued guidance aimed at investors using online platforms to trade digital assets,² and was likely published in response to the recent popularity of IEOs.³  

While the market for initial coin offerings (“ICOs”) has slowed in recent years, beginning in 2019 IEOs became a popular fundraising trend.⁴ IEOs are similar to ICOs; the major difference is that IEOs are offered on behalf of issuers by trading platforms referring to themselves as “exchanges,” while ICOs are offered directly to investors by issuers.