SEC warns investors about cryptocurrency scams

The Securities and Exchange Commission (SEC) on Monday issued a warning about investing in companies promising to raise capital by selling cryptocurrencies such as Bitcoin and Ethereum.

The agency told investors to be wary of buying stock in companies that tout “initial coin offerings” (ICOs), sales of units of valuable currencies run through electronic ledger systems.

As cryptocurrencies explode in popularity, accessibility, number and value, smaller companies and startups have used ICOs to build capital they’d struggle to win from venture capitalists and investment funds.

But scammers have also turned to promising ICOs as a way to boost stock prices of a company and sell the shares quickly before investors realize the offering was a lie or the company isn’t SEC-authorized.

“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 SEC said. The agency told investors to be wary of ICOs from companies that aren’t obligated to file federal financial disclosures, have recently formed or have little history

The SEC warning reflects the agency’s increasing attention to cryptocurrency trading.

A series of ICO scams and cybersecurity vulnerabilities prompted the SEC to take a closer look at cryptocurrency trading. In a July report, the agency told investors that ICOs could be considered securities trades under federal law, meaning companies would have to register most sales with the SEC.