Financial services regulators in the United States, Switzerland, and South Korea have taken steps this week to increase oversight of the nascent ICO funding model.
ICO Investments Surpass $2.2 Billion
The initial coin offering (ICO) is rapidly changing the fundraising landscape for both startups and investors, giving small companies greater access to capital and ordinary investors the opportunity to invest in projects previously only available to venture capital firms.
According to data from CoinSchedule, ICOs have raised a combined $2.2 billion in 2017, including $257 million raised by a single startup:
Understandably, these projects have begun to attract the attention of financial services regulators who desire to protect retail investors from fraudulent projects and other scams present within the crypto finance space. This week, officials in the United States, Switzerland, and South Korea took steps to crack down on those perceived threats.
SEC Charges ICO With Fraud
The U.S. Securities and Exchange Commission recently established a dedicated cyber task force to oversee, among other things, initial coin offerings. Earlier this week, the agency charged businessman Maksim Zaslavskiy with fraud for organizing two securities-backed ICOs that did not fulfill their promises to investors.
According to Zaslavskiy, his companies would use the funds raised in the REcoin and DRC World ICOs to invest in real estate and diamonds, but the SEC alleges that the operation was a scam and that the companies had not invested in these assets and had no real business operations. This appears to be the first instance of the SEC charging a token distributor with fraud, and it demonstrates the utility of a SEC-compliant ICO marketplace such as the one recently announced by online retailer Overstock.
Switzerland Investigating Suspect Startups
Meanwhile, Switzerland’s Financial Market Supervisory Authority (FINMA) also announced that it is investigating Swiss ICOs to determine whether any startups have breached securities regulations. Three of the year’s top five highest-grossing ICOs have been launched from Switzerland, and although FINMA has stated ICOs are not regulated under Swiss law, startups can still run afoul of existing regulations related to money laundering and other illegal activities. FINMA stated it is looking into “a number of different cases,” but it did not give any details about those investigations.
South Korea Levies Ban
Finally, South Korea has taken a somewhat-hostile stance toward ICOs, declaring the practice illegal within a country that has emerged as one of Asia’s largest crypto economies. Although the language of the ruling seems to imply that the ban is comprehensive and prohibits Korean residents from contributing to any token sale — much like the one implemented by China earlier this month — some reports suggest that only domestic ICOs are prohibited and that investors are still allowed to contribute to foreign startups.