The Securities and Exchange Commission has warned the public against investing in the so-called “initial coin offerings” and “virtual currency.”
The SEC posted an advisory on its website stating that ICOs and virtual currency were considered securities or investment contracts which under the Securities and Regulation Code should be registered with the corporate regulator.
“In view thereof, the public is hereby advised to be vigilant when investing in this kind of investing activity and to have necessary precautions in dealing with ICO entities,” the regulator said.
Virtual currency refers to digital representation of value issued and controlled by its developers and used and accepted among the members of a specific community.
An ICO is the first sale and issuance of a new virtual currency to the public usually for the purpose of raising capital for start-up companies or funding independent projects.
“Based on the information gathered by the commission, some of these new currencies, based on the facts and circumstances surrounding their issuance, follow the nature of a security defined by Section 3.1 of the Securities Regulation Code,” the SEC said.
Section 3.1 of the SRC provides that a security includes an “investment contract,” which means a contract, transaction or a scheme whereby a person invests his money in a common enterprise and is led to expect profits primarily from the effort of others.
“When a virtual currency is likewise analogous to any type of securities, Section 3.1 of the SRC there is a strong possibility that the said virtual currency is a security under the jurisdiction of the SEC and has to be registered and necessary disclosures have to be made for the protection of the investing public,” the SEC said.
The SEC said these ICOs and virtual currency should therefore be registered first with the commission and should obtain permit to sell securities to the public.
The regulator also warned salesmen, brokers and dealers of ICO firms who were selling or convincing people to invest in these unregistered financial instruments that they would be held criminally liable under the SRC.
“If a promoter, issuer, broker or salesman guarantees returns, if a potential investment sounds too good to be true or if you are pressured to act hastily, please exercise utmost caution and diligence and be wary of the risk that your investment might be lost,” the SEC said.