For the U.S. Securities and Exchange Commission (SEC), ICOs have long been an area of caution. The SEC has remained skeptical of the initial coin offering craze since it began with ethereum.

As ICOs have expanded globally – raking in close to $2 billion in fundraising over the span of just a few months – government agencies like the SEC's Office of Investor Education and Advocacy have debated how to approach this new phenomenon. In some cases, as in China, the government regulators determined it was in the best interest of the national economy to simply block ICOs altogether.

While the United States has not done that, the SEC has recently released a stern warning to potential ICO investors, cautioning them against buying up stakes in companies that assert that they are engaging in ICOs when in fact they are not.

Public Announcements of ICOs to Affect Stock Price

The warning by the SEC suggests that "while [ICOs] may provide fair and lawful investment opportunities, there may be situations in which companies are publicly announcing ICO or coin/token related events to affect the price of the company's common stock." In these cases, the letter suggests, the SEC may decide to suspend trading for those particular stocks.

When might the SEC decide to do this? If the company lacks "current, accurate, or adequate information," for one. This may be a suggestion that the company is designed for market manipulation purposes only. The SEC may also take issue if publicly-available information on the company in question invites questions about that company's activities, status, or structure, or if the agency has questions about trading in the stock or market manipulation more broadly.

What Does It Mean for Investors?

What should investors due in light of the SEC's warning? The message goes on to say that "investors should be very cautious in considering an investment in a stock following a trading suspension." Beyond that, though, investors should also take care to exercise due diligence before investing in any ICO. With a variety of types of ICO-related scams on the rise, malicious individuals and entities are hoping to capitalize on the braod interest in this new fundraising trend. (See more: Phishing Scams Have Cost ICO Investors $225M.)

Investors should be on guard to the possibility that any ICO is illegitimate. (See also: $232 Million ICO Has Some Worried About an Ethereum Sell-Off.) The best way to protect yourself from being the victim of a fraudulent ICO is to investigate as thoroughly as possible before you enter into the fundraising project.

The SEC suggests investors should always research companies before buying stock, looking carefully at finances, organization, business prospects, and more. Remember that information from sources like blogs, social network sites, and similar sources is not necessarily trustworthy. Companies involved with stock promotions suggest a particularly high level of scrutiny for potential investors.