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Screenshot of a breaking news alert e-mail from Q2 2017
Australia financial regulator ASIC has issued a statement indicating that it is focused on misleading or deceptive conduct in the marketing and selling of digital or virtual tokens via initial coin offerings (ICOs). ASIC said that these offers can involve significant risks for investors that are often not disclosed or well understood.
ASIC said that it is issuing inquiries to ICO issuers and their advisers where it identifies conduct or statements that may be misleading or deceptive. This is in addition to its inquiries where the regulator identifies potentially unlicensed conduct.
As a result of the inquiries, some issuers have halted their ICO or have indicated the ICO structure will be modified.
On April 19, ASIC received delegated powers from the Australian Competition and Consumer Commission (ACCC) to take action under the Australian Consumer Law relating to crypto-assets. The delegation from the ACCC enables ASIC to take action against misleading or deceptive conduct in marketing or selling of ICOs, even if the ICO does not involve a financial product.
For ICOs and crypto-assets that are not financial products (for example, ASIC has stated that it does not consider bitcoin to be a financial product), the same prohibitions against misleading or deceptive conduct apply under the Australian Consumer Law.
Conduct that may be misleading or deceptive to consumers can include:
- the use of social media to generate the appearance of a greater level of public interest in an ICO,
- undertaking or arranging for a group to engage in trading strategies to generate the appearance of a greater level of buying and selling activity for an ICO or a crypto-asset,
- failing to disclose adequate information about the ICO, or
- suggesting that the ICO is a regulated product or the regulator has approved the ICO if that is not the case.
ASIC Commissioner John Price said,
If you are acting with someone else’s money, or selling something to someone, you have obligations. 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.
In one recent example, ASIC said it took action to protect investors where it identified fundamental concerns with the structure of an ICO, the status of the offeror and the 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 under the Act.