Australia’s Securities Watchdog Cracks Down On Misleading ICOs

News, Regulation | May 2, 2018 By:

The Australian Securities and Investments Commission (ASIC) has started cracking down on “misleading or deceptive conduct” in the marketing and selling of digital tokens via initial coin offerings (ICO).

In a statement published yesterday, Australia’s corporate watchdog said that it is issuing inquiries to ICO issuers and their advisers where they identify conduct or statements that may be misleading or deceptive. The regulator said the action has resulted in some issuers halting their ICOs and others have been modified.

On April 19, Australia’s Competition and Consumer Commission (ACCC) delegated powers to ASIC to take action under the Australian Consumer Law relating to cryptocurrencies. This enables ASIC to take action against misleading or deceptive conduct in marketing or selling of ICOs, even if the ICO does not involve a financial product.

“Australian law prohibits misleading or deceptive conduct in a range of circumstances, including in trade or commerce, in connection with financial services, and in relation to a financial product,” the regulator said. “Care should be taken to ensure promotional communications about any cryptocurrency or ICO do not mislead or deceive potential consumers and do not contain false information.”

Citing one recent example, ASIC said it took action to protect investors when they identified fundamental concerns with the structure of an ICO, the status of the issuer, and the disclosure in its white paper. In addition to potentially misleading statements in the white paper, the issuer was said to be an unregulated managed investment scheme. This means the issuer would have been in breach of the relevant provisions of the Corporations Act had the issuer proceeded, potentially leading to serious penalties under the Act.

Last week, ASIC Commissioner John Price said the agency will focus on overseas-based ICOs that target would-be Australian investors.

“We will highlight that Australian corporate and consumer law might apply, even if the ICO is created and offered from overseas,” Price said. “This is an important point, given the international nature of this sector. We will also highlight information on how Australian law prohibiting misleading or deceptive conduct will apply in this space. As I said before, I think you can expect a strong focus from us in this area.”