Securities Commission cautions investors on risks of ICO schemes

The Securities Commission said investors should be mindful of the risks with ICO schemes.  — Reuters pic
The Securities Commission said investors should be mindful of the risks with ICO schemes. — Reuters pic

KUALA LUMPUR, Sept 7—The Securities Commission Malaysia (SC) has cautioned investors on the potential risks of initial coin offerings (ICO) schemes, as it noted the emergence of digital token-based fundraising activities/investment schemes in Malaysia and elsewhere.

In a statement today, the SC said ICO schemes may also be referred to as 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,” it said.

While all ICO scheme operators seek to raise funds from investors, these schemes can be structured in many forms, which may include direct investments in projects with the aim of enabling token holders to participate in a share of the returns from the projects.

Certain schemes may also seek funds through foundations, where investors would not be entitled to seek any returns on their investments.

It may also include issuance of tokens which entitle the investors to enjoy the rights to a future product or service generated by the project managed by the operator.

The SC said investors should be mindful of the fact that the scheme operators may not have a presence in Malaysia, and that it would be difficult to verify the authenticity of the scheme.

It also added that the recovery of invested monies may be subject to foreign laws or regulations.

“Some ICO schemes and the parties involved conduct their operations online and may not be regulated, thus investors may be exposed to heightened risks of fraud, money laundering and terrorism financing, while digital tokens traded on a secondary market may give rise to risks of insufficient liquidity or volatile and opaque pricing.

“The structure of these schemes may also limit the legal protection and recourse for investors against scheme operators,” it said.

As the terms and features of ICO schemes may differ in each case, the SC advised investors wishing to engage or invest in ICO schemes to seek legal or other professional advice on the scheme’s legitimacy.

“Investors should also fully understand the features of an ICO scheme, and carefully weigh the risks before parting with their monies,” it added. — Bernama