Investor Alert: ICO(s)! Initial Coin Offering or Investor Conning Organization?

By Robert Noens, Fall 2017 IAC Student Intern

Recently FINRA published a new investment alert regarding Initial Coin Offerings or “ICO”s. For those of you that do not know, as was the case for me prior to reading this newest investor alert, an ICO is when a company launches or offers a new virtual coin or cryptocurrency. Without getting too technical, a cryptocurrency is simply an online currency. The most well-known cryptocurrency at the moment is undoubtedly bitcoin. When bitcoin first started, the currency’s value was relatively low. Over the past few years, however, bitcoin’s value has soared. At one point, bitcoins’ value reached heights of nearly $3,000.00 per coin. Scammers were quick to notice.

Today, some startup companies, in attempt to make a quick buck, are trying to replicate the buzz and growth demonstrated by bitcoin. Some companies may be putting in a good faith effort. Some companies may even demonstrate a reasonable degree of success, but, like most things, someone eventually ruins the fun for everyone. That is where this FINRA investor alert comes in. There are a number of companies “launching” their own cryptocurrencies, creating buzz around the new cryptocurrency via phone calls and social media, driving the virtual currency prices up with unsuspecting investors’ real-world money, and then dumping or selling most or all of their virtual coins. The result of these actions ultimately leaves investors with a worthless pile of virtual coins a real-world empty wallet. In other words, they run off with your money.

This warning is not to deter everyone from cryptocurrencies. Some people have made incredible returns off of investing in cryptocurrencies. The market for cryptocurrencies, however, is extremely risky, unregulated, and full of fraudsters ready to capitalize on those trying to break into this newly created cyber, investment frontier. For these reasons, FINRA has published a list of precautions that one should take prior to investing in any cryptocurrency – that list can be found by clicking here.

Additionally, it should also be mentioned that even when equipped with FINRA’s list of precautions, the universe of cryptocurrencies is a highly risky one. Cryptocurrencies are inherently complex and quality information is hard to find. Companies and websites offering information, even the larger and more well-known ones, may hold a strong bias towards their own currency, especially if they own a large amount of their own virtual coins. Accordingly, be vigilant, do your research, read FINRAs investor alerts, and, as always, be wary of any solicitations.