Watchdog issues warning on dodgy cryptocurrrency offers
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The Australian corporate watchdog has issued a warning to promoters of Initial Coin Offerings, flexing its muscles under new powers.
An Initial Coin Offering or ICO is a form of crowdfunding. It is like an initial public offering — but instead of offering shares in a company, an issuer offers digital tokens that can be traded on cryptocurrency platforms or for digital services.
ASIC said it was taking action on misleading or deceptive conduct in ICOs – and had already halted several projects.
Under powers from the Australian Competition and Consumer Commission, the watchdog has the power to take action relating to cryptocurrency assets, even if an ICO does not involved a financial product.
Commissioner John Price said regardless of the asset class the responsibility for investor money was the same:
“Regardless of the structure of the ICO, there is one law that will always apply: you cannot make misleading or deceptive statements about the product. This is going to be a key focus for us as this sector develops.”
It held up an example of a ICO that raised concerns for its structure, status of offeror and disclosure in its white paper.
“In addition to potentially misleading statements in the white paper, the offer was an unregulated managed investment scheme. This means the offeror would have been in breach of the relevant provisions of the Corporations Act had the offer proceeded, potentially leading to serious penalties.”
Multiple issuers have either halted their ICO or indicated that they would make structural changes.
It goes so far as to write a warning to investors on its MoneySmart financial guidance site:
“There has been a lot of hype around some popular cryptocurrencies, but not all ICOs are cryptocurrencies. Some are high-risk investments in start-up blockchain projects that may be nothing more than an idea. Some have turned out to be scams.
You could lose a lot of money if you buy into an ICO without doing your research first.”
The latest update reflects efforts by regulators to crack down on riskier elements of the crypto market following last year’s surge in popularity.
It follows an announcement by ASIC last September, where it clarified what type of ICOs would be regarded as a Managed Investment Scheme (MIS).
Any ICO which satisfies the criteria for an MIS in Australia would then be subject to registration, licensing and disclosure requirements in accordance with the Corporations Act.
In the US, the Securities & Exchange Commission (SEC) — which performs a similar function to ASIC in Australia — made its intentions clear on dodgy ICOs when it issued a wave of subpoenas in early March.