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Tips for investors: how to protect yourself from possible fraudulent schemes

Today, the Securities and Exchange Commission (SEC) issued a warning, advising investors to closely monitor the trade in shares of public companies that claim to be affiliated or claim to be participating in the original coin offerings (or ICO).

31.Aug.17 3:02 PM
By Daria Zaytseva


Tips for investors: how to protect yourself from possible fraudulent schemes

This is the final twist in the ICO saga, where earlier alerts were more focused on dealing with the offer of selling tokens made by start-ups or non-public companies.

In view of this increased attention on the part of regulators, we can very well see much more detailed control over these potential offers and market maturation in order to ensure that quality projects with high-quality development groups will be financed using this new investment mechanism.

It remains to be seen what steps the regulators will have to take to ensure that all proposals will continue to comply with the laws of the country and the investor community will not suffer.

The SEC detailed the following tips for investors, which are designed to educate the public about possible schemes of fraud and protection of the interests of investors. Below are the tips from the newsletter for readers.

1. Always research the company before buying its stock, especially after a trading suspension. Consider the company's finances, organization and prospects. This type of information is often included in applications that the company makes with the SEC, which is available for free and can be found in the EDGAR application system.
2. Some companies are not required to file reports with the SEC. They are known as non-reporting companies. Investors should be aware of the risks of trading in the shares of such companies, since there can not be relevant and accurate information that would allow investors to make an informed investment decision.
3.Investors should also conduct their own research and know that information from online blogs, social networking sites and even the company's own website can be inaccurate and potentially deliberately misleading.
4. Be especially careful about shares, including those related to new technologies, such as ICOs.

Follow these warning signs of possible fraud associated with ICO:

- A company that has ordinary shares, claims that its ICO is "SEC-compliant", without explaining how the offer is consistent with securities laws;
- A company that has a common stock trade also intends to raise capital through the ICO or take over the business associated with the ICO, described in vague or senseless terms or using vague technical or legal jargon.

Also watch for these warning signs of possible fraud with microcaps:

- the SEC suspended public trading in securities or other securities promoted by the same promoter;
- an increase in the price of shares or the volume of trades occurring simultaneously with advertising;
- press releases or advertising activities reporting events that do not ultimately occur (for example, several announcements of preliminary transactions or agreements, announcements of transactions with unnamed partners, announcements using hyperbolic language);
- the company does not have any real business transactions (several assets or the minimum gross income);
- the company issues many shares without a corresponding increase in the company's assets;
- frequent changes in the name of the company, management or type of business.

Last month, the SEC ordered freezing of shares in publicly traded companies, namely First Bitcoin Capital Corp., CIAO Group, Strategic Global and Sunshine Capital.

All these firms have repeatedly faced changes and publicly announced plans for potential proposals for crypto-currencies and ICO before the SEC took note of and ordered the freezing of trading in shares.

In connection with the rapid growth in ICO's, regulators around the world began to take note and issue recommendations to better inform investors about possible violations of the securities laws.

Regulators in the US, Canada and Singapore have developed specific recommendations in this regard to help investors better understand what constitutes securities and what is not.

Regulators are especially afraid of pump and discharge schemes, according to which some coins can be used specifically to inflate their price offer, so that vested interests can then be dumped with profit.

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