On May 17, 2018, the British Columbia Securities Commission (“BCSC”) issued an investor alert warning residents of the province to exercise “extreme caution” when considering whether to invest in cryptocurrency offerings and in particular, initial coin offerings (“ICOs)” and initial token offerings (“ITOs”).
Issued in response to a noted increase in the number of ICOs and ITOs, the BCSC alert warns that while some companies follow through on their promised business plans or ideas, some do not, and that some companies use ICOs and ITOs purely for speculative trading in the secondary market, an activity the BCSC brands as “inherently risky”.
ICOs and ITOs are issuances of cryptocurrency coins or tokens, often to raise capital or fund projects, but also used for other purposes, such as to represent units of utility or rights. As the BCSC alert notes, many of these coins and tokens are securities, and if so, they—and the ICOs and ITOs through which they are issued—are subject to securities laws and must be conducted in accordance with the regulations applicable to similar issuances of shares and other types of securities.
The BCSC maintains a searchable Investment Caution List to alert investors to unregistered securities activity and unqualified investments promoted in British Columbia and encourages the public to report these kinds of activities to the BCSC to improve the comprehensiveness and currency of the list.
In issuing this alert, the BCSC joins other regulators around the world that have raised alarm bells about ICOs and ITOs in an effort to encourage investors to carefully scrutinize cryptocurrency investments. While many regulators acknowledge that not all cryptocurrency coins and tokens are securities and that many ICOs and ITOs are legitimate (in fact, last October, the Ontario Securities Commission approved its first ICO in Ontario and the BCSC announced its first registration of an investment fund manager dedicated solely to cryptocurrency investments), the rapid rise of ICOs and ITOs has increased regulators’ concerns about bad actors and high-risk investments in the cryptocurrency space. Regulators have responded with increased efforts to educate investors about the potential dangers of cryptocurrency investments, such as the BCSC’s InvestRight website and the United States Securities and Exchange Commission’s HoweyCoins.com, a website designed to mimic a bogus coin offering to help investors spot a scam.