Regulators in the United States, South Korea and Switzerland all took independent steps on Friday to crack down on so-called initial coin offerings, a hot but risky new method of raising money for start-ups.
In the first nine months of the year, various projects raised over $1.5 billion from investors by selling new virtual currencies, according to CB Insights. These new coins are usually modeled on Bitcoin, but are meant to be used only inside the projects they are associated with. One new coin, for example, is intended to be a gambling chip in a still-unfinished casino program.
The market has taken off with investors around the world, but has so far operated with almost no regulatory oversight.
In the United States, the Securities and Exchange Commission warned in July that some of these offerings were likely to violate securities law, but the agency did not take steps against any specific offenders at the time.
On Friday, the agency found its first target in Maksim Zaslavskiy, the promoter of two coins that were supposed to have been backed by real estate and diamonds.
The agency said on Friday that Mr. Zaslavskiy had told investors that he had a team of lawyers, brokers and accountants working on the project when, in reality, “none had been hired or even consulted.”
The S.E.C.’s complaint, filed in federal court in Brooklyn, accused Mr. Zaslavskiy of fraud and asked for a freeze on his assets.
Mr. Zaslavskiy, a 38-year-old Brooklyn resident, could not immediately be reached for comment.
In the world of coin offerings, Mr. Zaslavskiy’s were small potatoes — the S.E.C. said REcoin, his real estate coin, had raised only around $300,000. The largest coin offerings have raised over $200 million.
But the charges on Friday suggest that the agency is serious about going after offenders.
South Korea took much stronger steps on Friday, banning coin offerings in the country after a similar move by China a few weeks ago.
Virtual currency trading has taken off in South Korea in recent months, and many entrepreneurs promoting coins have made trips to South Korea seeking investors.
The South Korean Financial Services Commission promised “stern penalties” for anyone who issues coins in the country. The authorities have already arrested people who have been involved in virtual currency operations that defrauded investors, the regulators said.
Until recently, Switzerland appeared to be a rare place where regulators were friendly to virtual currency businesses and coin offerings, leading many entrepreneurs to base their operations in the country. On Friday, though, the Swiss Financial Market Supervisory Authority announced that it was “investigating a number of I.C.O. cases to determine whether regulatory provisions have been breached.”
The Swiss agency echoed earlier statements from regulators in the United States, who said that at least some coins being sold should fall under regulations governing securities.
The agency said it would initiate “enforcement proceedings” if its current investigations turned up any coin offerings that had violated the rules.
The announcements pushed down the price of most virtual currencies on Friday.
But the scrutiny of the market has not stopped new entrepreneurs from planning their own coin offerings. Just in the next week, over two dozen projects are set to begin raising money, according to Token Data.
The New York Times
