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PUBLIC ADVISORY: Virtual Currency Business

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Globally, virtual currencies are becoming increasingly popular as a means to conduct traditional
business in the financial and capital markets. These transactions also include invitations to the
public to invest in these virtual currencies or to participate in funding activities including Initial
Coin Offerings (ICOs) or other Token Generating Events.
The Eastern Caribbean Securities Regulatory Commission (ECSRC) wishes to advise the public
in the ECCU of the potential risks of investments in ICOs and all forms of virtual currency. The
recent publicity surrounding virtual currencies and ICOs, presents a tempting picture of high
returns on investment. High reward investment scenarios have high potential for financial loss and
fraud. Potential investors can be easily lured with the promise of high returns in a new investment
and may be less skeptical when assessing the risks. The block chain technology associated with
ICOs and virtual currencies may create a false sense of security for the investor and obscure the
true risks associated with the individual instruments.
What is an ICO?
Some startup companies are using initial coin offerings, also called ICOs or token sales, to raise
capital. In an ICO, a company creates a new virtual coin or token that is offered for sale to the
public. Investors should be aware that the typical ICOs do not give any ownership rights in a
company; neither is it an investor loan to the issuer. ICOs are often unregulated and involve new
technologies and products that are highly technical and complex. Furthermore should a regulatory
body in the country where the ICO is based and/or issued deem the token to be a security issued
in breach of securities laws, it could have a significant negative impact on the company and the
token’s value or usability. As a result, investors can lose some or all of the money they invest.
There are a number of risks associated with ICOs and virtual currencies, such as:
1. Potential for incomplete information on the investment;
2. A high degree of technical expertise needed to understand the investment;
3. Exaggerated expected returns;
4. Rapidly changing prices;
5. Potential for not being able to resell the virtual currency;
6. Potential for losing the investment to hackers;
7. No regulatory protection for the investor;
8. Funds raised could be used to finance terrorism; and
9. Fraud
Customers should thoroughly research virtual currencies, digital coins, tokens, and the companies
or entities supporting them in order to separate fiction from facts.
Red Flags
1. The public should be aware of the following red flags to help identify potentially
fraudulent ICOs:
2. Claims of endorsements by the ECSRC or other regulatory body
3. There is limited information about the investment, the project and the development
team, including insufficient or vague technical information relating to the coin
4. The promoters are pushing for you to make a quick decision which may include stating
that well-known persons are investors or associated with the project
5. There is an aggressive marketing campaign around the ICO, with promises of large or
quick returns
6. The project developers are anonymous
Protect Yourself
The best protection for customers is to only purchase virtual currencies, digital coins, or tokens
that they have thoroughly researched. Remember: Virtual currencies are not legal tender in the
ECCU and most countries; no one is obligated to accept them as payment; and they cannot be
redeemed by the ECCB The ECSRC does not give endorsements to any investment product or
company Independently check claims of regulatory or government endorsements directly with
the regulator or government department; do not use the links or numbers provided by the seller
Do not purchase digital coins or tokens because of a single recommendation, especially if it
comes over social media Do not believe promises of quick wealth There is no such thing as
a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money,
do not invest. If it sounds too good to be true, it usually is.
To date the ECSRC has not approved or endorsed any virtual currency business in the
ECSM.
If you believe that you are a victim of a fraud involving virtual currencies, contact the Financial
Crimes Unit of the Police Force in the respective ECCU member territory.
The ECSRC was created following the establishment of the Eastern Caribbean Securities Market
(ECSM) and is the primary authority for the regulation of participants and activities in the market.
The Commission’s overall function is to promote a safe environment for investing on the ECSM.
-END-

 

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