The Financial Industry Regulatory Authority is warning investors about the potential risk of participating in initial coin offerings, or ICOs, which differ significantly from initial public offerings involving stocks, could lose money, and are being used by con artists to dupe investors.
As the alert explains, ICOs involve new technologies and products that are highly technical and complex, and investors can lose some or all of the money they invest in an ICO.
Some startup companies are using ICOs, or token sales, to raise capital.
In an ICO, a company creates a new virtual coin or token that they offer for sale and disseminate to purchasers using blockchain technology, also called distributed ledger technology, the alert says.
"Unlike stocks, ICOs typically confer no ownership rights in the company; and unlike bonds, ICOs do not involve investors lending money to the issuer," the alert states. "Instead, ICOs involve new technologies and products that are highly technical and complex, and investors can lose some or all of the money they invest in an ICO."
