Hong Kong’s Securities and Futures Commission, the country’s securities regulator, has moved to shut down an initial coin offering (ICO) citing “potential unauthorized promotional activities and unlicensed regulated activities.”
Black Cell Technology was forced to halt its initial coin offering by the regulatory body. The project has complied with the official verdict by ceasing the token sale, and investors have been told their cryptocurrency will be returned.
The project was proposing to use investor funds for development of their app, with token holders promised equity shares in return. It was this feature that alerted the regulatory authority, who have classed the token as a security. The body’s official statement described the ICO has an “unlicensed regulatory activity”, with collective investment schemes required to register and comply with official regulations. Whilst the SFC has in the past issued warnings to companies, today’s news marks the first intervention to shut down an ICO in Hong Kong.
Black Cell Technology are developing a mobile-based food marketplace named Krops, which they believe will simplify business both for farmers and shoppers. It’s unclear how the project will proceed, however, with regulatory bodies clamping down on ICO’s. Previously projects launching via initial coin offerings have had to restrict access to investors from countries hostile to the business model. The US SEC (Securities and Exchange Commission) has in particular been clamping down on ICO’s with detailed investigations underway. Some projects have received subpoenas, and those just entering ICO stage are keen to stay out of potential investigation. China has been even stronger, however, issuing a blanket ban on all ICOs within the country.
Whilst the development in Hong Kong has taken some by surprise, the action by Hong Kong’s SFC has not come out of the blue. Last month the regulatory body issued a warning to cryptocurrency trading platforms to not involve themselves with tokens that could be perceived as securities. The body has been steadily developing its approach, indicating potential action as far back as September of last year when a statement was issued that some cryptocurrency platforms held features that could class them as securities.
Black Cell was likely particularly targeted because their token specifically referenced a return for token holders. It was a move that clearly marked the token as a potential security. Other projects have been more ambiguous in their approach however, and avoided direct regulatory intervention. But with authorities clarifying their approach towards ICOs, it remains to be seen for how long that freedom will continue.
Featured image of Hong Kong from Shutterstock.
Indian Woman Shares Credentials with Scammers, Loses $55,000 in Bitcoin
Indian police in the country’s capital city of Delhi are reportedly investigating a bitcoin theft wherein a woman’s wallet was allegedly ‘hacked’ by scammers to siphon away 6.5 bitcoins, approx. $54,000 in current prices.
According to a local report, the Central Bureau of Investigation (CBI) – India’s primary law enforcement and intelligence agency – has begun a probe into an alleged theft of bitcoins from an individual’s wallet. The investigation, headed by the agency’s economic offences wing, is looking into the victim’s claim of losing just under 7 bitcoins in total last year.
The victim said she first invested around 0.4 bitcoins in an unnamed firm that promised 12% monthly returns on investment over seminars in five-star hotels, in February 2017. The returns started turning up in her bank account, prompting her to put more money into the scheme.
“I invested all my savings in the company along with my friends and family members,” she told the Times of India, having invested again in the company in May 2017 with funds matured from her mutual fund policy. Those returns, in Indian fiat rupees, stopped in August 2017. Subsequently, the company reportedly started issuing returns to investors with its own cryptocurrency. While details are scarce on the purported crypto tokens issued, the woman asked the firm to return her invested money after a disagreement over getting paid in tokens.
Come October, the victim claimed she was contacted by the company to process the return of her funds. In order to do so, the firm reportedly asked for her email ID and password registered with the company’s website. The victim, upon sharing her credentials, soon discovered that her email and her bitcoin wallet had been accessed maliciously. Presumably, she used the same credentials uniformly across the platforms.
She told the publication:
“On November 8, 2017, my blockchain wallet was hacked, which had 6.5 Bitcoins. The hackers also deleted all the data on my email ID.”
India, like many other countries globally, has seen soaring interest in cryptocurrencies by adopters and traders alike in recent years. Predictably, the rise in the mainstream prominence of decentralized cryptocurrencies has also birthed a number of crypto-scams in the country, which sees no regulation for the industry presently.
“Cases of fraud related to bitcoins are becoming more frequent,” a senior Indian crime branch officer said last year. ”[Bitcoin’s increasing popularity and acceptance around the world] has attracted many new investors. However, cashing on its rising popularity, some scamsters are also running fraud set-ups.”
Featured image from Shutterstock.
US Regulatory Climate Continues to Be Hazy for ICOs
The US Congress continues to pass business-friendly legislation, but many in the cryptoasset space complain that ambiguities in federal securities laws will prevent initial coin offering issuers (ICOs) from taking advantage of them.
Last week, the House of Representatives passed the Regulation A+ Improvement Act of 2017, which seeks to implement a 50 percent increase to the amount of capital that small companies can raise through securities offerings that are much less robust than the traditional initial public offering (IPO) route pursued by large firms.
If the bill passes the Senate and is signed into law by President Trump, companies pursuing Regulation A+ securities offerings will be allowed to raise up to $75 million and accept some investments from retail investors.
Unfortunately, industry observers warn that blockchain startups seeking to raise capital through ICOs may not be able to take advantage of this business-friendly regulatory climate due to ambiguities in how this nascent fundraising model fits into a nearly century-old legal framework.
As industry giant Coinbase stated in written testimony before a House subcommittee last week:
“Unfortunately, the current regulatory environment — in particular regulation by enforcement without enough clear guidance on what is permissible — is harming healthy innovation in the U.S. There is so much uncertainty about the definition of a security and the scope of regulatory control that the market is being chilled. This is bad for everyone because the technology won’t stop — it will simply move overseas and we will miss out on the opportunity to cultivate the benefits in the U.S.”
“For us, the chilling effect can be shown by the difficulty of determining with certainty when a token is not a security. Because we seek to comply with all applicable laws and regulations, we simply cannot take the risk that a token is later found to be a security,” Coinbase concluded.
Indeed, as CCN has reported, the Securities and Exchange Commission (SEC) has taken an increasingly hard line against token sales and has acknowledged that it is investigating dozens of ICO operators for potential violations of securities laws. Agency officials have said that the current regulatory framework is sufficient for determining whether an ICO is a security, but it has not provided startups with guidance on how to determine on which side of that classification their token sales fall.
Moreover, the Treasury Department has suggested that ICO operators may be subject to certain regulations governing financial institutions, such as the Bank Secrecy Act (BSA). This broad interpretation of federal law could require ICO issuers to register as money service businesses (MSB) — a requirement with which few startups are likely equipped to comply.
However, as witnesses — and several lawmakers — warned during last week’s House subcommittee meeting on cryptocurrencies and ICOs, this uncertain regulatory climate will not kill the burgeoning industry, which has taken root across the globe.
Rather, it will continue to lead many blockchain startups to relocate offshore and bar US residents from contributing to their crowdsales — leaving the US on the sidelines as innovation proceeds elsewhere.
Images Source: Featured image from Shutterstock.
News Source: https://ccn.com
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