If you have lost money following an “initial coin offering” (ICO) you may be entitled to compensation for your losses. In the past few years, cryptocurrencies such as Bitcoin have led to wild stories of large fortunes being made. Leveraging this enthusiasm, opportunistic promoters with little to no business model and lacking the appropriate investor disclosure as required by law have, since the beginning of 2017, created new cryptocurrencies and “tokens,” selling them in misleadingly named schemes called ICOs. Without offering any of the investor protections of an initial public offering (IPO), these ICOs have rapidly raised over $8 billion dollars in what has been called “the wild west” of investing. Like so many things that seem too good to be true, the cryptocurrency market has raised red flags with investors and started to attract the wrath of the Securities and Exchange Commission (“SEC”). Unfortunately for investors, ICOs have ignored longstanding securities laws and regulations, leading to increased opportunities for fraud and manipulation. Investors who were led to believe that they had found great investments have been losing money at an alarming rate due to fraudulent or poorly managed ICOs. Fortunately, under US laws, investors have direct rights against these bad actors. If you were the victim of securities fraud masquerading as an “ICO,” even if you bought your cryptocurrency after the ICO on an exchange, contact FDAzar immediately.
On July 25, 2017, the SEC published an investor bulletin regarding what an investor should consider prior to investing in ICOs. Since ICOs largely disregard well-developed investor protection regulation, it can be difficult for even the most seasoned investor to know which ICOs are fraudulent or simply poorly designed and managed. In either case, most ICOs are issued in violation of federal and state securities laws, raising clear rights of action for ICO investors.
Although promoters of ICOs have shamelessly asserted that these money-raising schemes were not securities subject to regulation by the SEC, this fabrication has been strongly refuted, by the SEC, state securities commissions, international securities regulators and damaged private investors. The Chairman of the SEC has stated that he has yet to see any ICO that is not an offering of securities and, therefore, subject to Federal (and state) securities laws. These laws place strict registration requirements on all security ICOs. And yet, no ICO has successfully registered with or sought an exemption from the SEC. The SEC has now begun aggressive enforcement of the violations of law perpetrated by ICO promoters. Thus many, if not all, issuers of these cryptocurrencies, and their related parties, such as directors, officers and promoters, are in violation of Federal and state law and are required to provide refunds to investors. If the company is found guilty of securities violations, you could lose some – if not all – of your investment. Further, failure to follow the many laws applicable to cryptocurrencies—not just securities laws—but laws that regulate commodities, require appropriate recording of the persons involved, and mandate privacy requirements and cybersecurity standards, can cause the value of any tokens you invested in to be significantly reduced due to the negligence of the company offering the tokens.
If you lost all or part of your investment in a cryptocurrency following an ICO, contact FDAzar immediately. For over 25 years, the attorneys at Franklin D. Azar and Associates have been protecting the rights of victims of financial wrongdoing, including fraud, violations of state and federal securities and regulatory requirements, and negligent business practices. We will be able to determine if you may have a claim to recover all or part of your lost investment after a short consultation and investigation by our skilled team of attorneys.
A cryptocurrency is a virtual currency that is created using very complex mathematical algorithms. Cryptocurrencies are encrypted using cryptography, which is a security measure to secure and verify the transfer of coins and tokens. Even though the “coin” does not physically exist, it can have real world cash value. These “coins” are considered de-centralized as they are not issued by a government or central authority, making it easier to avoid government regulations. Some of the best-known cryptocurrencies are Bitcoin, Litecoin, and Ethereum.
An initial coin offering, token sale, or token launch is similar to a large-scale crowdfunding venture. They are designed to raise funds for new cryptocurrency ventures and bypass the traditional, well-regulated capital-raising process usually required by banks and venture capitalists. At the outset, either a coin or a token is sold to investors in exchange for either legal tender or other cryptocurrencies. Investors are generally drawn to these offerings for the same reasons they may be drawn to invest in stocks – the hope that the value of the coin or token will rise after investment. The term ICO can be deceptive because companies can offer either coins or tokens as the investment opportunity. Generally, however, tokens are offered in exchange for other coins. These offerings can raise millions of dollars in a matter of minutes.
The purpose of a coin is to act like money, changing in value over time and used to pay businesses or people for services or products. While tokens are not considered money in the same way coins are, they tend to have functionality above and beyond coins in that they can deliver value to investors beyond speculative returns. Tokens can be used to raise money for a business venture, as votes by owners on key business decisions or even be bought back like a dividend to avoid regulatory scrutiny. Although the lines can be a bit blurry, one can imagine coins being like digital cash and tokens doing everything else relating to cryptocurrency investments.
Generally, everything but a Bitcoin is considered an altcoin. Some altcoins build upon Bitcoin’s mathematical algorithm and simply change its functionality, and others create their own codes from scratch. Regardless of the name, altcoins may be used as a means of payment.
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