Finra has released a clear caution about the threats of buying preliminary coin offerings, ThinkAdvisor reports.
Some start-ups use these offerings as a way of raising capital. In an ICO, a company produces virtual coins and offers them to people thinking about backing the company.
” Unlike stocks, ICOs usually give no ownership rights in the company; and unlike bonds, ICOs do not include financiers providing money to the company,” Finra’s alert states. “Instead, ICOs include brand-new innovations and items that are extremely technical and complicated, and financiers can lose some or all the cash they purchase an ICO.”.
Gerri Walsh, FINRA’s senior vice president for financier education, warned in a declaration that “scam artist” can use the extremely technical nature of ICOs as a chance to “fool financiers,” ThinkAdvisor composes.
Finra recommends financiers thinking about an ICO to determine whether it’s a securities offering, the publication notes. If “the deal and sale of tokens or coins in an ICO make up a securities offering, then the federal securities laws use,” the alert states.