red warning flag on a stormy beach

U.S. securities regulators are warning investors about a new type of digital asset offering known as initial exchange offerings (IEOs).

The U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy issued an alert to investors calling for caution before buying into IEOs through online trading platforms.

The alert said that IEOs are being pitched as an improvement on initial coin offerings (ICOs) because they are sold by trading platforms on behalf of issuers and enable immediate trading.

The alert warned that these online platforms usually aren’t registered with the SEC, and IEOs don’t carry the investor protections of registered or exempt market securities.

“Claims of new technologies and financial products, such as those associated with digital asset offerings, and claims that IEOs are vetted by trading platforms, can be used improperly to entice investors with the false promise of high returns in a new investment space,” the alert said.

Additionally, these offerings may violate federal securities laws, the SEC said.

“It is a red flag if the IEO and its participants, including the online trading platform, do not address or discuss the applicability of the federal securities laws,” the alert said.

And if they claim that an IEO is approved or registered with the SEC, that’s a red flag too.

“There is no such thing as an SEC-approved IEO,” the alert said. “It is common for a fraudster to make false and misleading statements or exaggerated claims about regulatory approvals and oversight to lure potential investors.”