By Jeff John Roberts
August 29, 2017

As if the risk over so-called “initial coin offerings” wasn’t high enough. Now, the Securities and Exchange Commission is warning investors of a new peril: companies that tout an upcoming “ICO” to inflate the price of their shares, and cash out when suckers buy in.

In case you’re unfamiliar, ICOs involve a company selling digital currency (a.k.a. coins or tokens) to the public in order to finance a new blockchain-based software application. While the tokens can be used within the application (when and if it’s finished), many people are treating them as a speculative investment.

A recent ICO mania has given rise to some blatant ripoffs in which companies take investors money but fail to build the promised blockchain application. But it’s also leading to more indirect scams—such as what the SEC warned about in a notice on Monday—and added to overall concern about ICOs:

In the notice, the SEC said it had suspended trading of shares in four companies that had been talking up ICO-related activity. The four firms (First Bitcoin Capital Corp., CIAO Group, Strategic Global, and Sunshine Capital) are not exactly Goldman Sachs or J.P. Morgan but instead obscure micro-cap stocks worth pennies.

This obscurity didn’t, however, daunt CIAO Group from announcing a “$530 Billion [!!!] Blockchain and Cryptocurrency Target Market Collaboration” this summer—presumably in the hopes the news would lead investors to rush in to buy their stock.

In its notice, the SEC states the obvious—”Investors should be very cautious in considering an investment in a stock following a trading suspension”—but also provides useful background about how pump-and-dump scams work:

Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a promoter will call using the same sort of pitch. In reality, the author of the messages may be a company insider or paid promoter who stands to gain by selling their shares after the stock price is “pumped” up by the buying frenzy they create. Once these fraudsters “dump” their shares for a profit and stop hyping the stock, the price typically falls, and investors lose their money.

Importantly, though, the SEC also notes that ICOs are not intrinsically bad, stating that they “may provide fair and lawful investment opportunities.” This is consistent with some prominent Silicon Valley entrepreneurs, who have made compelling cases about why token sales will expand and democratize the investment process.

For now, though, the ICO craze is setting off so many alarm bells—including recent warnings from the SEC and Canada that many “tokens” are unlicensed securities—that investors should proceed with extreme caution.

This is part of Fortune’s new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.

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