A senior official at Hong Kong’s securities regulator has warned investors that a large number of initial coin offerings are “dubious, if not downright frauds”, industry website Coindesk has reported.
The controversial fundraising method, which allows start-ups to issue and sell their own virtual tokens, exploded in popularity last year, establishing itself as the primary way for blockchain projects to raise capital. However, it also raised criticism and attracted scrutiny from regulators in a number of countries around the world, including the US, the UK, China and South Korea.
Hong Kong has been among the jurisdictions where regulators have started to monitor the industry more closely. A few weeks ago the Securities and Futures Commission (SFC) halted an ICO on the grounds that the token on offer was an unregistered security product. In February, the regulator ordered several cryptocurrency exchanges to delist ICO tokens that it deemed to be securities.
In a speech at an investment industry function on Friday, the SFC deputy head Julia Leung reiterated the watchdog’s tough stance on the sector.
"While we acknowledge that innovative technologies such as blockchain have the potential to improve efficiency and financial inclusion, that does not entitle anyone to conduct fundraising from the public in violation of securities law," Leung said, as quoted by Coindesk.
"Further complicating matters, many of these fundraising (activities) are dubious, if not downright frauds,” Leung also said, adding that the issuers were able to avoid “the scrutiny of the police or securities regulators because of their cross-border nature and the way the crypto assets are structured to fall outside any regulator's perimeter”. The official also argued that many participants in ICOs were aware that “there is no intrinsic value in the tokens but are betting on the rapid rise of the token value in the secondary market”.