Chinese investors ‘being misled’ on digital currency fundraising schemes

Initial coin offerings are high-risk due to unclear assets and lack of information disclosure, trade group says

PUBLISHED : Thursday, 31 August, 2017, 1:32pm
UPDATED : Thursday, 31 August, 2017, 7:10pm

The rise of initial coin offerings in China has disrupted the social economic order and poses a financial risk, a domestic trade group said.

Institutions have misled investors to raise funds through ICOs, according to a statement from the National Internet Finance Association of China, an organisation endorsed by the State Council and top finance and banking watchdogs.

Unauthorised by regulators, some of the ICOs are suspected of fraud, illegal equity offerings and fundraising, the statement said.

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“ICO projects have unclear assets, no investor suitability standards and gravely lack information disclosure and therefore have relatively high risks,” it said. “Investors should keep a clear mind, stay on high alert for frauds and report any wrongdoings to the police department.”

ICOs, which have raised about US$1.6 billion, have been deemed a threat to China’s financial market stability as authorities struggle to tame financing channels beyond the traditional banking system. They have also increasingly captured the attention of central banks that see the fledgling trend as a threat to their authority.

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A cross between crowdfunding and initial public offering, ICOs involve the sale of virtual coins mostly based on the technology that underpins bitcoin. Unlike a traditional initial public offering in which buyers get shares when companies list on the stock market, in an ICO, investors get virtual tokens unique to the issuing company or its network. That means they grow in value only if the business or network proves viable, attracting more people and boosting liquidity.

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The amount of money amassed within a short span of time has also attracted cyber criminals, with an estimated 10 per cent of money intended for ICOs looted by scams such as phishing this year, according to Chainalysis, a New York-based firm that analyses transactions and provides anti-money-laundering software.

China’s regulators are considering measures to regulate ICOs, such as controlling the size of the offerings or requiring more disclosure, Chinese media reported this week, citing unidentified people.