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ECSRC issues public advisory on investment in virtual currency

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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.

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