SC issues caution over 'initial coin offerings'

Gaining strength: Bitcoin, has been around since 2009 and was last trading at US$907.43 (RM4,060).

KUALA LUMPUR: Securities Commission Malaysia (SC) has cautioned investors over the emergence of "digital token-based fundraising activities/investment schemes", also known as initial coin offerings (ICO).

Such activities may also be referred to as "initial token offerings", "token pre-sale" or "token crowd-sale", the SC said in a press statement on Thursday.

ICO scheme operators typically raise funds through the issuance and sale of digital tokens in exchange for payment in the form of virtual currencies such as Bitcoin or Ethereum.

They can also be structured in various forms such as direct investments in projects in exchange for a share of the returns, seeking funding through foundations where investors are not entitled to any returns, and issuance of tokens that entitle the investor to enjoy rights to a future product or service.

The SC notes that investors should be mindful of the potential risks, such as:

- Scheme operators may not have presence in Malaysia and it would be difficult to verify the authenticity of the scheme and the recovery of invested monies may be subject to foreign laws or regulations

- Some ICO schemes and the parties involved operate online and may not be regulated, investors may be exposed to heightened risks of fraud, money laundering and terrorism financing

- Digital tokens traded on a secondary market may give rise to risks of insufficient liquidity or volatile and opaque pricing

- The structure of these ICO schemes might limit the legal protection and recourse for investors against scheme operators.

The SC reminds investors to seek legal or professional advice and fully understand the features of an ICO scheme before investing in it.
 
"For example, investors should be aware that ICO scheme operators issues a whitepaper, which typically contains descriptions of the ICO scheme but may also carry disclaimers which absolve the operators from certain responsibilities and obligations," it said.