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Investor Alert: Beware of Claims That the SEC Has Approved Offerings

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors of misrepresentations about SEC “approvals” of offerings.

What is in an SEC Filing and What Does it Mean to File?

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.

Who Makes Filings With the SEC?

Under the federal 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.

Some SEC Filings to Know

It is worthwhile to understand what the filing of documents with the SEC means and what actions the SEC staff takes with respect to such filings.  Following is a brief summary of filings related to certain exemptions that early-stage ventures, such as ICOs, may decide to rely on.

Form 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.

Fraudsters may use Form D to lure investors.  Fraudsters may use Form D to falsely claim SEC registration or that an offering was approved by the SEC.  In one case, the defendants allegedly recruited investors by falsely claiming that their firm was “registered” or “duly registered” with the SEC and pointing to the firm’s Form D filings to support this misrepresentation.

Regulation A.  Regulation 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.  

How to determine qualification.  You can review the filings made by a company on the SEC’s EDGAR database.  Please review our guide on how to use EDGAR.  A filing with the form type “QUALIF” indicates a notice of qualification has been issued with respect to the related Regulation A offering statement.

CrowdfundingEarly-stage ventures may use Regulation Crowdfunding 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 EDGARThe SEC staff does not take any action on Form C filings, and a Form C does not represent approval by the SEC.

Additional Resources

To learn more about red flags to consider with unregistered offerings, see our Investor Bulletin.

For additional investor educational information, see the SEC’s website for individual investors, Investor.gov.

If you are considering participating in an ICO or other investment opportunity involving digital assets, see the SEC resources available at Spotlight on Initial Coin Offerings and Digital Assets.

 


The Office of Investor Education and Advocacy has provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

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