SEC sends shock waves in the crypto industry with new notice – Cryptopolitan

The US Securities and Exchange Commission (SEC) has issued a new notice to warn investors about the potential risks associated with cryptocurrency investments.

The notice highlights that companies and platforms offering investments or services in cryptoassets are not complying with applicable laws, including federal securities laws.

The registration requirements

Under the federal securities laws, a company cannot offer or sell securities unless the offering is registered with the SEC or an exemption from registration is available.

The Act also requires parties such as securities dealers, investment advisers, alternative trading systems (ATS) and exchanges to register with the SEC or a self-regulatory organization (SRO), such as FINRA. Failure to register can deprive investors of key information needed to make informed decisions.

Unregistered offerings of crypto-asset securities cannot provide financial statements audited by an independent public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB).

Audited financial statements play an important role in ensuring that investors receive the information they need to understand the securities in which they wish to invest.

Proof of Reserves is a term used by crypto-asset entities, including trading platforms and entities that issue crypto-asset securities, to describe a voluntary method of offering proof that an entity collectively has sufficient reserve funds to cover what is held for clients and/or accounts at a given time.

Although crypto-asset entities may offer these types of ratings as a way to satisfy clients that their funds are safe and available on demand, the SEC warns that these types of services may not provide meaningful assurance that these entities have sufficient assets to support clients theirs. ‘ balances.

The SEC also emphasizes the importance of registration with the SEC by an entity as a “broker-dealer” and/or “investment adviser” to protect investors.

These protections include rules around custody of assets, fees, conflicts of interest, standards of conduct and minimum capital requirements for broker-dealers.

SEC-registered entities are also subject to investigations by regulators, and investors benefit from protections offered by the Securities Investor Protection Corporation (SIPC) and other regulatory bodies.

Risks of Investing in Crypto Assets: SEC

Investing in crypto-asset securities can be exceptionally risky and volatile, and over the past year a number of major platforms and crypto-assets have become insolvent and/or lost value.

Investors who deposit funds or cryptoassets with a cryptoasset securities entity may cease to have legal ownership of those assets and may not be able to get those assets back when they wish. The SEC warns of the potential for fraud, Ponzi and pyramid schemes, and outright theft in the crypto-asset space.

The SEC also cautions investors about celebrity endorsements, which do not mean an investment is appropriate for all investors or even legitimate.

Celebrity endorsements may be paid promotions, and investors should consider the potential risks and opportunities to determine whether an investment opportunity is right for them.

Before making any investment, the SEC advises investors to create and follow an investment plan, pay off high-interest debt first, and consider the importance of asset allocation and diversification. Investors should also understand the risks and terms of the investment before investing.