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The Wild West of ICOs: What Investors Need to Know

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Over the last two years, initial coin offerings (‘‘ICOs’’) have skyrocketed. During 2017, funds raised through ICOs exceeded $4 billion, around 40 times the $100 million raised in 2016. The third quarter of 2017 alone had 105 ICOs raising over $1.32 billion. ICOs are incredibly attractive because they are an alternative way to raise capital outside of traditional markets, without the need to sell stock or pitch venture capitalists, essentially functioning as a cross between an IPO and a crowdfunding campaign. However, while IPOs and crowdfunding are regulated to protect investors, ICOs are swirling in an evolving grey area. This creates risk for investors who may be vulnerable to scammers, and uncertainty for entities raising funds through ICOs as to whether they need to follow securities laws. The result is a wild west of virtual investments without a clear sheriff in town.

Reproduced with permission from Securities Regulation & Law Report, 50 SRLR 63, 01/08/2018. Copyright © 2018 by The Bureau of National Affairs, Inc.

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