Initial coin offerings (ICOs) are outright frauds that need to be stopped, according to the U.S. Securities and Exchange Commission (SEC). This is why it has become hard for regulators to monitor ICOs activities in different jurisdiction because often money raised in ICOs comes from investors in America and other parts of the world.
While speaking at Harvard Law School’s Program on International Financial System, SEC Co-Director for Enforcement Division Steven Peikin noted how the ICO market has exploded from a mere concept to a phenomenon within a short period of time. In 2016, ICOs raised $100 million, while in 2018, they raised $22 billion—a 22,000% increase. The novelty of ICOs, accompanied with the excitement surrounding blockchain technology, has been a key attraction that enterprising people have been using to lure investors, according to Peikin.
The hype and growth of the ICOs can obscure the fact that most of these offering are high-risk investments. At times, the issuers may lack established records of accomplishment. They may also not have viable products business model or proper security measures safeguarding the digital assets from hackers. Without considering all these investors are quick, to pour out their money to projects that eventually fraudulently shut down.
Peikin recalled the case of ICO fraud conducted by Canadian Dominic Lacroix, who defrauded many U.S. investors out of some $15 million by promising a 13-fold profit in less than a month. Lacroix turned out to have had a long history of doing similar financial frauds in Quebec and Canada.
Peikin believes in fighting the fraudulent activities in ICOs and the crypto space there should be global cooperation. He acknowledges collaboration between, the United stated and Canada in Operation Crypto Sweep. The operation was launched in May 2018 by the two countries, which is conducting over 70 investigations into cryptocurrency scams and fraud in ICOs. So far, the North American Securities Administrators Association has sent cease letter to operators of fraudulent crypto companies I more than forty jurisdictions in both countries.
According to Peikin, “The sponsors of ICOs are, in many instances, located outside the United States. And international cooperation is critical to our ability to investigate and, where appropriate, recommend that the Commission bring enforcement action.”
Meanwhile, SEC lawyers recently warned celebrities from endorsing ICOs to avoid being charged with fraud. A few celebrities, such as Floyd Mayweather and Dj Khaled, have already fallen victims to such fraudulent ICOs.
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The U.S. could be inching closer to creating a regulatory framework for cryptocurrencies and initial coin offerings (ICO). Representative Warren Davidson from Ohio has been working on a new bill that is designed to pave the way for crypto and ICO regulations, according to media outlet Cleveland.com, and would clarify the definition of cryptocurrencies.
The bill will be presented to the House of Representatives for discussion. It looks to create a new and unique asset class that would cover crypto and ICOs, allowing the government to regulate the crypto space more thoroughly. The legislation is designed to prevent digital assets from being classified as securities and would allow the federal government to maintain complete regulatory oversight of token offerings.
There is a lot of confusion in the U.S. regarding how to define cryptocurrencies. The Securities and Exchange Commission (SEC) has said that, with the exception of Bitcoin Core (BTC) and Ether (ETH), the majority of cryptocurrencies are securities. On the other hand, the Commodities Futures Trading Commission (CFTC) asserts that they are commodities.
Two additional agencies, the U.S. Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN), both say that crypto is money. Without a central definition in place, standard regulations cannot be created.
Davidson is somewhat of a proponent of cryptocurrencies, or at least of the space in general. He has been pushing for regulation of crypto and assisted in the writing of a letter to the SEC this past September in which he asked that the commission speed up its introduction of legislation in order to prevent tech companies from leaving the U.S. The letter read, in part, “Current uncertainty surrounding the treatment of offers and sales of digital tokens is hindering innovation in the United States and will ultimately drive business elsewhere. We believe that the SEC could do more to clarify its position.”
Even if the bill were to pass through the House, it would still need to be considered by the Senate. Ultimately, this means that regulations shouldn’t be expected to come anytime soon. Perhaps they’ll be implemented sometime next year, but there’s still a long road ahead.
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It’s no secret that Japanese authorities are looking to take control over tax money it feels is lost in the crypto space. The country is behind an effort being developed by the G20 to implement a global crypto tax strategy that could see governments receive millions of dollars in payments. Back home in Japan, regulators are now looking to introduce a new system that will report significant profits from crypto-based transactions, helping the country recover even more funds.
According to the Japanese media outlet Mainichi Shimbun, the new system to be implemented will give the National Tax Agency (NTA) the ability to gather data from transaction intermediaries, which include crypto exchanges. The NTA will have the authority to request information – such as names, addresses and personal ID numbers – on customers that it suspects of tax evasion. If everything goes according to plan, the system will be developed next year, with an anticipated implementation for the new fiscal year beginning in April 2020.
Not all individuals would be targeted by the new system. The media outlet quotes several sources who said that only those who earn over 10 million yen ($88,700) through crypto transactions would be held accountable.
Currently, crypto exchanges and other companies that are deemed intermediaries only give up data voluntarily. They have the legal ability to refuse to hand over information, but this could change with the new legislation. The exchanges could be forced to adhere to the requests, but would still maintain the right to appeal any request it feels is unwarranted.
The impact won’t be felt widespread, at least not initially. According to a recent survey conducted by the NTA, only just over 300 people indicated that they earned more than 100 million yen through crypto last year. Given the current market slide, the number has probably dropped significantly.
Japan is also ready to come down hard on initial coin offerings (ICO). The Japanese Financial Services Authority (FSA) announced this week that it would introduce stricter regulations on the offering in order to protect investors from fraud. Going forward, any entity wishing to launch an ICO would have to first register with the FSA.
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The cryptocurrency sell-off has a number of investors singing the blues. More than a handful of individuals bought into crypto following Bitcoin Core’s (BTC) massive price gains last year, expecting to see the same explosive growth in 2018. It hasn’t happened; in fact, the numbers are down significantly from the beginning of the year with many digital currencies losing as much as 75% of their value. However, instead of looking at this as a glass-half-empty scenario, it needs to be seen as a glass-half-full situation that is going to produce great things for cryptocurrency.
Many people have forgotten why cryptocurrency was created. They have become blinded by the dollar signs, hoping to be able to convert a few Bitcoin into a new Lamborghini or oceanfront party house by seeing substantial returns. What was presented by Satoshi Nakamoto about ten years ago was designed to be a currency, a form of money that was peer-to-peer, not controlled by a central bank and which allowed for instant transactions. A currency is only good if it can be spent; as long as there are any obstacles that prevent it from reaching widespread mainstream adoption – such as massive volatility – it can never flourish.
The sell-off is a good thing. It is helping a great number of people to begin to take cryptocurrency more seriously. It is eliminating the get-rich-quick scammers operating through initial coin offerings (ICO) and new – but worthless – digital tokens that provide no utility.
It has also produced a market that is, on some levels, cleaner than before. Despite wild fluctuations, price volatility has been less than what was seen last year, meaning there is more stability in the markets. This is going to help produce an ecosystem that is able to thrive and provide the results that everyone should desire to see – a world that accepts digital currency as a legitimate currency and which removes the ability for central banks or countries to whimsically manipulate prices.
Those behind Bitcoin SV are not looking to create a cryptocurrency that sees its price head to the moon one day, only to come crashing back down the next. Instead, the goal is to create a sustainable cryptocurrency that is a viable alternative to fiat. Despite the actions of some individuals to try and derail the train from the tracks, Bitcoin SV has been able to remain true to the original Satoshi’s Vision and create a cryptocurrency that is not only looking at the long-term prospects, but which, in a sea of wanna-be digital currencies, has true, tangible utility value.
Japan’s chief financial regulator, the Financial Services Agency (FSA), will reportedly roll out a new set of regulations targeting initial coin offerings (ICOs) in the country. According to Japanese news outlet Jiji Press, the financial authority wants to impose new regulations to protect investors in the crypto space.
Citing the increased fraudulent activities relating to ICOs, FSA believes it is high time they took appropriate actions to provide order and protection for the public. In the proposed regulations, all businesses offering crypto-related services in the country will be required to register with FSA before starting operations.
FSA plans to submit the proposed bill in January 2019, during the ordinary parliamentary session. The proposed bill will seek to revise the financial instruments and exchange law as well as the payment services law, according to the report.
The Japanese FSA is not the only financial authorities to want regulations for the ICO space. In the recent months, the U.S. Securities and Exchange Commission (SEC) has been busy in trying to regulate ICOs. Though it has taken a conservative and traditional approach on ICO, U.S. securities regulator has made a milestone in shaping the ICO industry. Last month, authorities in Thailand also tightened its grip on ICO regulation to create order in the industry.
Different jurisdictions worry that if proper regulations are not set for ICOs, fraudulent activities will cause significant effects on the economy. They have a good reason to worry. According to a recent report by Diar, a cryptocurrency and blockchain research company, ICO fraudulent cases have raised $12 billion, twice more than what was reported in 2017.
In the report, Diar stated that the amount raised by the ICO does not justify their operations. The report also noted that most of the ICOs either get unlisted or they do not have the funds needed to stay in business. More than 60 percent tokens that completed their ICOs in 2017 and 2018, raising over $2.3 billion in the process, have yet to be listed on any exchange.
The report also noted that a good number of these ICOs have ended up being scams. ICO owners conduct an exit scam after collecting millions of dollars from unsuspecting investors. In the last two years, exit scams caused by ICOs amounted to $100 million.
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The South Korean government is looking at imposing a tax on cryptocurrencies, and regulation for initial coin offerings (ICOs).
The Korea Times reported that Finance minister nominee Hong Nam-ki, during his confirmation hearing, had issued a prepared statement enumerating the taxation plan, which will take into account practices elsewhere in the world.
Hong said, “A task force consisting of experts from relevant government agencies including the National Tax Service and the private sector will be formed to examine overseas examples and hammer out the taxation plan.” Currently, according to him, there was “no internationally agreed regulatory framework” for cryptocurrencies, which he called “a new phenomenon.”
He also expressed concerns of “such lingering problems as the market overheating and investor protection. Therefore, we need to be careful in building the regulatory framework.”
Hong said that ICOs, which were prohibited in the country in September 2017, will be considered for regulation instead, with other markets to be monitored before a decision is made.
“We will determine our policy orientations on ICOs with relevant agencies after reviewing the results of the financial regulator’s market survey and getting feedback from experts,” Hong said. The survey had local blockchain companies providing their input on the matter.
Hong had made similar statements in support of allowing ICOs, as chief of the Office for Government Policy Coordination. The country’s National Assembly is also recommending the lifting of the ban, after which regulations could be legislated.
Cryptocurrency exchanges in the country have enjoyed preferential tax rates, being classified like venture companies, but the government indicated last October that higher rates were coming for such firms.
Hong said, “We will do our utmost to nurture blockchain technology as nine out of the 10 business types classified as blockchain-related businesses by Statistics Korea excluding the crypto exchanges can be still acknowledged as venture companies.”
The exchanges, however, have recently benefited from the government’s clarification that banks need not worry of legal issues when dealing with cryptocurrency-related businesses, as long as the usual anti-money laundering/know-your customer (AML/KYC) requirements were met.
South Korea is a member of the G20 forum, that recently issued a joint declaration calling for regulation of cryptocurrencies in line with standards of the Financial Action Task Force (FATF), of which the country is also a member.
Cryptocurrency mining firm Envion AG was reportedly shut down in Switzerland over allegations that it conducted an unauthorized initial coin offering (ICO). On Wednesday, German news outlet Handelsblatt Global reported that the Cantonal court of Zug ordered the company’s liquidation, noting that the Swiss firm lacked any auditing function or board.
Established by Michael Luckow and Matthias Woestmann, Envion is an off-grid mining company that boasts of using decentralized, clean energy such as solar and hydroelectric to power its mobile mining units. The Swiss company held an ICO in early 2018, raising around $100 million.
Luckow accused his partner of taking control of the majority of Envion shares shortly after the company held its crowdsale. Meanwhile, Woestmann claimed Luckow illegally generated another 40 million of Envion’s native tokens (EVN) without the knowledge of the board of directors. This, according to Woestmann, was in addition to the 86 million tokens that were initially agreed on.
In July, the Swiss Financial Market Supervisory Authority (FINMA) launched a probe into Envion’s ICO and found that the company accepted some 100 million francs (worth $100.01 million at the time) from 30,000 investors. The company reportedly gave investors the EVN tokens “in a bond-like form.”
According to reports, FINMA was investigating “possible breaches of banking law resulting from the potentially unauthorized acceptance of public deposits” during the token sale.
Since the dispute between the two, Luckow has been fighting for the firm in a bid to save the original concept. In a Medium post, Envion stated, “The founding team now faces the challenge of responding to fallacious allegations as they make their case against Woestmann. Though Woestmann can produce no evidence supporting his allegations, envion’s founders have begun a campaign to publish the necessary proof to allow investors to determine the truth based on verifiable documentation.”
Financial supervisors have already appointed an investigator to ensure the liquidation process is “unavoidable.”
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The Texas Securities Commissioner has issued an emergency cease and desist order against My Crypto Mine and Mark Royer, an individual involved with the company, in the latest wave of enforcement action against illegal initial coin offerings (ICOs).
Royer is accused of acting on a behalf of a disbarred attorney, Samuel Mendez, and a “white collar criminal” Bruce Bise, in offer crypto tokens known as bitqy through a company, BitQyck. Urging investors who missed out on BTC to back BitQyck, the bitqy tokens have subsequently turned out to be near worthless.
At the time of selling tokens to investors, Royer said they were available for $0.02, with the implication that prices would rise to $3 per token. In reality, the tokens are now worthless, with most of those who invested having lost the entirety of their invested principal.
The filing identifies Royer as working for a new firm, My Crypto Mine, without disclosing his prior affiliation with BitQyck and bitqy. My Crypto Mine appeals to investors in Texas and elsewhere to invest in the company, with the promise of significant returns from crypto mining—ironically at a time when some of the world’s largest crypto mining companies are filing for bankruptcy.
The cease and desist order says My Crypto Mine is issuing unregistered securities, and that the respondents are not registered with the Securities Commissioner as agents or dealers, a position that is in breach of securities laws.
The order also alleges that My Crypto Mine has failed to disclose material details to investors, both about the business and about Royer’s past affiliations with potentially fraudulent cryptocurrency schemes.
There has also been a failure to disclose risks to investors appropriately, including notices that government actions could ultimately affect the value of any investment in the company.
The respondents have been ordered to cease and desist from offering securities in Texas, and from acting as dealers and agents in the offer of these securities. It comes as the latest example of a securities regulator cracking down on fraudulent ICOs and token sales, which continue to exploit unsuspecting investors globally.
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The Malaysian government has yet to release its regulations for the cryptocurrency industry, but plans to enforce these as soon as the first quarter of next year.
Finance Minister Lim Guan Eng said that he had been informed by the country’s Securities Commission (SC) that it would use the new regulations to help provide fundraising to companies via alternative means.
He said, “We are keen on the continued development of such alternative financing avenues for these businesses beyond the traditional channels of financing,” according to local outlet The Star. He was speaking at a conference organized by the SC.
Lim noted persistent skepticism about the industry, but said, “[T]here can be no doubt that we need appropriate regulations to be put in place and enforced to safeguard the interest of investors.”
The regulations would cover not just initial coin offerings (ICOs), wherein numerous scams such as Ponzi schemes are prevalent, but cryptocurrency exchanges, which elsewhere in the world have been targets of thefts by hacking.
According to Lim, the proposed legislation will have the SC and the Bank Negara Malaysia, the country’s central bank, forming part of a committee headed by the Finance Ministry.
Already, the government has budgeted a Co-Investment Fund for MYR50 million ($11.9 million) involving equity crowdfunding and peer-to-peer financing, which appear compatible with blockchain and cryptocurrency firms. The fund will have the government matching one-fourth of private investors’ contributions.
The SC has long been considering a regulatory framework that would adequately guide growth of the local industry. Late last year, the drafting of rules was being discussed. Shortly before this, some officials had seemed less inclined to even allow blockchain businesses in the country, suggesting an outright ban.
Last September, the government formed a task force, the Malaysian Industry-Government Group for High Technology (MIGHT), to look into adopting blockchain for the country’s major industries, namely renewable energy, palm oil, and Islamic finance.
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Moshe Hogeg, a known cryptocurrency entrepreneur in Israel, is reportedly facing embezzlement charges in connection with the missing funds from two initial coin offerings (ICOs). According to local media outlets, the petition against Hogeg was brought to court by 17 shareholders of the now-defunct Israeli binary option company, AnyOption.
The Times of Israel reported that the petitioners sought to liquidate IDC Investdotcom Holdings, a Cypriot company that was operated from Israel and associated with Hogeg. In their petition, the shareholders claimed Hogeg stole assets and profits from the company, rendering it insolvent.
The petition further explained that the company, which is better known as Invest.com, held two successful ICOs with each collecting “tens of millions of dollars.” Hogeg, however, allegedly did not share the revenue from the token crowdsales with the shareholders per their contractual agreement.
According to reports, issues between the shareholders and Hogen rose after the crypto entrepreneur failed to meet new agreement terms. The changes started when AnyOption was forced to merge with Invest.com in June 2017 before the Israeli government ban on binary option took effect in October of the same year. As filed by Shy Datoka, one of the primary shareholders of AnyOption, Invest.com was interested in getting all the assets that AnyOption had to offer. Initially, Invest.com offered forex and CFD trading to investors, but later it decided to try to raise money through ICOs.
The two companies changed their merger agreement terms in early 2018. The companies originally agreed that shareholders from AnyOption would own 35% of Invest.com, but under the new terms, the shareholders were entitled to $3.5 million and a share or token of a new cryptocurrency company they launched, called Stox.
Stox raised $34 million in ETH in August 2017, although the value later rose to $60 million. The crypto company also held another ICO in February for a project called Zodiac, which raised $33 million, according to the petition.
A spokesperson for Hogeg told reporters that Zodiac is a private project and has never issued any tokens, claiming that all shareholders belonging to AnyOption had received all their tokens in Stox.
This year, Hogeg has ventured into what many may term as a shopping spree. He recently bought a parcel of land in Tel Aviv at $19 million. He also bought the Israeli top soccer club Beitar Jerusalem for $7.2 million. Hogeg is also reported to have donated $1.9 million to Tel Aviv University, which will build a blockchain research facility that will be named after him.
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