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Securities Commission Malaysia (SC) has cautioned investors on the emergence of the digital token-based fundraising activities or investment schemes, following the recent crackdown on illegal foreign exchange trading schemes in the country.
SC said in a statement yesterday that these activities may also be referred as “initial coin offerings” (ICO), “initial token offerings”, “token pre-sale” and “token crowd-sale”.
ICO scheme operators typically raise funds through the issuance and sale of digital tokens, in exchange for investors paying for these tokens through virtual currencies, such as Bitcoin or Ethereum.
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SC noted that these schemes can be structured in many forms, including direct investments in projects that enable token holders to participate in a share of the returns, seeking funding through foundations where investors are not entitled to any returns, and issuance of tokens which entitle the investors to enjoy rights to a future product or service.
Hence, investors are urged to be mindful of the potential risks involved in ICO schemes as the operators may not have presence in Malaysia and it would be difficult to verify the authenticity of the scheme and the recovery of invested monies may be subject to foreign laws or regulations; some ICO schemes and the parties involved operate online and may not be regulated, which expose investors to heightened risks of fraud, money laundering and terrorism financing; digital tokens traded on a secondary market may give rise to risks of insufficient liquidity or volatile and opaque pricing; the structure of ICO schemes might limit the legal protection and recourse for investors against scheme operators.
As the terms and features of ICO schemes may differ in each case, the SC reminded investors to seek legal or other professional advice if there are doubts on the legitimacy of the schemes.
SC also noted that investors should fully understand the features of an ICO scheme, and carefully weigh the risks before parting with their money.
“For example, investors should be aware that ICO scheme operators issue a ‘white paper’, which typically contains descriptions of the ICO scheme but may also carry disclaimers which absolve the operators from certain responsibilities and obligations.”
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