SEC Issues Investor Alert: Cautions on Issuers that Claim SEC has “Approved Offerings” such as ICOs

We have seen this one a lot.

Issuers file a Form D with the Securities and Exchange Commission (SEC) and once it pops up on Edgar (the SEC’s document database) the entity or individual claims it has been “approved” by the SEC. That’s a bunch of bunk and issuers who do that are most likely scams or, at best, simply incompetent. An extreme example is a recent press release by VToken that claimed to have received a “US STO License” and linked to a Form D filing.

The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert to warning investors of misrepresentations about SEC “approvals” of offerings.

To quote the alert:

“Companies offering securities for sale, including through initial coin offerings (ICOs), are in some cases subject to filing requirements with the SEC.  But you should know that a filing does not mean that the SEC has in any way validated or approved of the offering.  Indeed, the SEC never “approves” an offering.  The SEC has recently observed situations in which sponsors of ICOs have allegedly touted SEC forms and filings as indications that the investment has been “approved” by the SEC.  That is not true.  Although a company may make a filing on the SEC’s EDGAR database, that filing does not confer any special status.

While the SEC staff reviews certain forms and filings for compliance with disclosure obligations, the SEC does not evaluate the merits of any offering nor does it determine if any securities offered are “good” investments.  Early-stage investing is marked by high risk.  You should know the risks of your investment, including that you could lose all of your investment.”

The SEC states that under existing securities laws, a company may not offer or sell securities unless the transaction has been registered with the SEC or an exemption from registration applies.  Whether registering or relying on an exemption for an offering, companies may be required to make filings on the SEC’s EDGAR database.

The SEC has provided a brief synopsis of the securities exemptions:

Regulation D:

“Rule 506 of Regulation D is a frequently used exemption from registration.  When relying on the exemption, a company will file a Form D notice filing on EDGAR.  A Form D filing merely represents a notice to the SEC and the public of the offering with certain details about the company and the offering.  The SEC staff does not take any action on Form D filings.  A Form D does not represent registration of the offering with, or approval by, the SEC.

Regulation A.

“[Reg A+] is another exemption from registration.  Under the exemption, a company must file an offering statement on Form 1-A on EDGAR.  The SEC staff may review Forms 1-A for compliance with disclosure obligations.  Only when the staff has qualified the offering statement may the company accept payment for the securities offered.  However, the filing itself does not mean the offering has been qualified by, or registered with, the SEC.  Qualification does NOT mean the SEC has approved the offering.”

Regulation CF (crowdfunding).

“Early-stage ventures may use [Reg CF] to offer and sell securities through an online platform that is a funding portal or broker-dealer.  Under the exemption, a company must file an offering statement on Form C on EDGAR.  The SEC staff does not take any action on Form C filings, and a Form C does not represent approval by the SEC.

Emphasis added. Caveat Emptor.

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