Companies thinking of riding the blockchain wave to a stock price jump might want to consider the Securities and Exchange Commission first.
The regulatory agency suspended trading in three Oregon-based firms last week after investigating their balance sheets and businesses. Cherubim Interests Inc. (CHIT), PDX Partners Inc. (PDXP), and Victura Construction Group Inc. (VICT) are penny stocks that trade in OTC markets. They had published press releases in January claiming to have acquired assets from a private equity firm that has interests in cryptocurrency and blockchain technology in its businesses.
“There are questions regarding the nature of the companies’ business operations and the value of their assets, including in press releases issued beginning in early January 2018,” the SEC wrote in a post on its site, adding that trading in Cherubim had also been stopped due to delinquency in filing of annual and quarterly reports.
“This is a reminder that investors should give heightened scrutiny to penny stock companies that have switched their focus to the latest business trend, such as cryptocurrency, blockchain technology, or initial coin offerings,” said Michele Wein Layne, Director of the Los Angeles Regional Office. But Patrick Johnson, who is listed as the CEO of all three companies, has said they were not involved in “the cryptocurrency space."
Valuations of companies that have tacked onto the blockchain and cryptocurrency craze have jumped in recent times. But the SEC has taken an increasingly strident stance against such companies and cracked down on their operations. For example, it halted trading in UBI Blockchain Internet last month due to “unusual and unexplained market activity.”
In a Congressional hearing recently, SEC Chair Jay Clayton also came out against initial coin offerings (ICOs) and said that every ICO that he had seen was a security token. Unlike utility tokens, which are unregulated, security tokens fall under SEC purview. Cohen's statement could be construed as a mark of the agency’s future intentions. (See also: Is Ethereum A Security? SEC Chair Sows Confusion.)
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.