Wall Street’s top regulator has a warning for mom-and-pop investors who are rushing into the booming market for initial coin offerings: the space is probably full of fraud.
“It would shock me if you don’t see pump-and-dump schemes in the initial coin offering space,” U.S. Securities and Exchange Commission Chairman Jay Clayton said Thursday in Washington. “This is an area where I’m concerned about what’s going to happen to retail investors,” he added.
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Clayton’s comments show the regulator is worried crooks are harnessing technology to pull off a scam that’s about as old as markets themselves: Talking up an asset and then selling out at an inflated price once the dumb money pours in.
The SEC has been stepping up its scrutiny of ICOs, which startups have used to raise more than $2 billion this year alone, according to financial analysts at Autonomous Research LLC. The offerings allow investors to fund companies, often receiving digital tokens in return.
The regulator is among authorities tasked with trying to prevent investors from getting fleeced as ICO fever sweeps the globe. In July, the SEC cautioned the industry that in many instances, these offerings are essentially securities that must be registered with the agency.