The Australian Securities and Investments Commission (ASIC) has announced that it has taken action to stop several proposed initial coin offerings or token-generation events (together, ICOs), targeting retail investors.
As well, ASIC recently stopped the issue of a Product Disclosure Statement for a crypto-asset managed investment scheme.
In five other separate matters since April 2018, ASIC says it has acted to prevent ICOs raising capital without the appropriate investor protections. These ICOs have been put on hold and some will be restructured to comply with the applicable legal requirements. ASIC is taking further action in respect of one completed ICO.
On 13 September 2018, ASIC issued a final stop order on a Product Disclosure Statement issued by Investors Exchange Limited (IEL) for units in the New Dawn Fund. 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.
ASIC identified the following problems with these ICO’s:
- the use of misleading or deceptive statements in sales and marketing materials;
- operating an illegal unregistered managed investment scheme;
- not holding an Australian financial services licence.
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.
It is a serious breach of the Australian Consumer Law to undertake misleading or deceptive conduct.
For ICOs and crypto-assets that are financial products, financial products are also regulated by the Corporations Act and the ASIC Act.