Initial Coin Offerings: Know Before You Invest
Some start-up companies are using initial coin offerings, also called ICOs or token sales, to raise capital. In an ICO, a company creates a new virtual coin or token that they offer for sale and disseminate to purchasers using blockchain technology, also called distributed ledger technology. Investors should be aware that ICOs differ significantly from initial public offerings (IPOs). Unlike stocks, ICOs typically confer no ownership rights in the company; and unlike bonds, ICOs do not involve investors lending money to the issuer. Instead, ICOs involve new technologies and products that are highly technical and complex, and investors can lose some or all of the money they invest in an ICO.
Depending on the facts and circumstances of each individual ICO, the virtual coins or tokens that are offered or sold may be securities. As a new Investor Bulletin from the Securities and Exchange Commission (SEC) notes, if the tokens in an ICO are securities, the offer and sale of these virtual coins or tokens are subject to the federal securities laws.
FINRA is issuing this alert to inform investors about the potential risks of participating in ICOs.
Source: Fool.com