The Australian Securities and Investments Commission (ASIC) is getting serious about its financial scam ban, announcing that it has stopped several proposed initial coin offerings (ICOs) or token-generation events that targeted retail investors.
The country's financial regulator said it also acted to prevent ICOs raising capital without the appropriate investor protections in five other matters since April 2018 and stopped the issue of a Product Disclosure Statement (PDS) for a crypto-asset managed investment scheme.
The ICOs in question have been put on hold and some will be restructured to comply with the applicable legal requirements, ASIC said, noting it is also taking further action in respect of one completed ICO.
An ICO is a form of crowdfunding that can be a source of capital for startups. In return for investor cash, the organisations involved offer virtual coins such as bitcoin, ethereum, or custom tokens, and the transaction is recorded on a blockchain.
"If you raise money from the public, you have important legal obligations. It is the legal substance of your offer -- not what it is called -- that matters," ASIC Commissioner John Price said. "You should not simply assume that using an ICO structure allows you to ignore key protections there for the investing public and you should always ensure disclosure about your offer is complete and accurate."
According to ASIC, consistent problems in the area of ICOs it has identified include the use of misleading or deceptive statements in sales and marketing materials; operating an illegal unregistered managed investment scheme; and not holding an Australian financial services licence.
"Such problematic offers involve significant risks for investors," ASIC wrote in a statement on Thursday.
Last week, the corporate regulator issued a final stop order on a PDS issued by Investors Exchange Limited (IEL) for units in the New Dawn Fund. ASIC said the fund was proposing to invest in a range of cryptocurrency assets.
Following ASIC raising concerns about the PDS, IEL consented to a final stop order so that no units could be obtained under the PDS.
"ICOs are highly speculative investments that are mostly unregulated, and while there are genuine businesses using this structure many have turned out to be scams," ASIC continued.
ASIC in May announced taking action against ICOs, and that it was investigating in particular misleading or deceptive conduct in the marketing and selling of cryptocurrencies.
ASIC published guidance on the legal responsibilities of Australians when it comes to conducting, or investing in, ICOs in September.
As the independent government body points out in its now-updated ICO information sheet, anyone with access to the internet can create or invest in an ICO.
ICOs are not banned in Australia, and are mostly unregulated.
"We want to ensure innovative firms understand the regulatory framework they may be operating under and ensure they meet any obligations they may have when raising funds in Australia," Price said previously.
"ICOs are highly speculative investments, are mostly unregulated, and the chance of losing your investment is high."
The corporate watchdog has paused some ICOs, and has warned issuers and advisers to stay on the right side of Australian Consumer Law.
UK regulators are drafting laws to control ICOs but a legal expert has cast doubt on how they can be enforced.
Both Houses have passed legislation extending anti-money laundering and counter-terrorism financing regulation to digital currency exchanges.
A report from Australia's consumer watchdog found many locals got caught up in 'pyramid' cryptocurrency schemes last year, hoping to capitalise on the 'success' of bitcoin.
The top 5 security threats posed by ICO projects (TechRepublic)
If your business wants to get involved with ICOs, be aware that 100% of ICO mobile apps contain vulnerabilities, according to a Postive.com report.