Financial experts say it is worthwhile putting in the time to educate ourselves on initial coin (or token) offerings (ICOs) and other investment schemes involving digital tokens. After all, digital is the future - but that does not mean that every digital currency-related investment will make money. Nor is it a suitable asset class for everyone.
TSMP Law Corp's joint managing partner, Ms Stefanie Yuen Thio, advised consumers not to be seduced by sexy terms like "cryptocurrency", "ethereum" or "bitcoin" and think that this is a sure-win money-spinner. "Unless you know the arrangers of the transaction to be reputable and regulated, which can be verified against the Monetary Authority of Singapore (MAS) website, investors should proceed with extreme care," she said.
"A white paper does not provide the same degree of information as a prospectus. We shouldn't let the new nomenclature make us believe that an ICO has the same protection as an initial public offering."
Ms Chung Shaw Bee, head of deposits and wealth management, Singapore and the region, at UOB, cautioned there are a number of uncertainties that could confuse prospective investors. These include the technology which is the medium of the exchange of value, the real value of the virtual currency and the real value of the underlying assets. "The technology of and behind the virtual currency does not necessarily guarantee the substance, quality or even existence of the investment's underlying assets. Neither does it provide for certainty of returns," she said.
Mr Nizam Ismail, head of regulatory practice, RHTLaw Taylor Wessing, said that if the coins offer some form of securities (for example, with rights similar to that of shares and bonds) or collective investment schemes, the issuer has to have a prospectus lodged with MAS. "If there is no prospectus, then the offer of securities may be an illegal one and could give rise to a criminal offence. If the coins do not offer securities, it would still be prudent for an investor to find out from the white paper, or from their own due diligence, how the company intends to use the proceeds from the ICO," he said.
For those already invested in such schemes, Mr Anson Zeall, chairman of local trade body Access, suggests asking whether the coins issued to you are securities, that is, they give you rights similar to shares (ownership in a company), or debt (promise of return of coupon/interest), or a collective investment scheme. "If they do, the issuer should be regulated and cannot issue coins without a prospectus lodged with MAS. If you suspect that these are securities and there has been no prospectus, you should obtain legal advice or contact MAS," he said. Access represents the Singapore Cryptocurrency and Blockchain Industry Association.
WHEN IT MAY BE ILLEGAL...
If there is no prospectus, then the offer of securities may be an illegal one and could give rise to a criminal offence.
MR NIZAM ISMAIL, head of regulatory practice, RHTLaw Taylor Wessing.
Mr Low Kah Keong, a partner at WongPartnership, recommends that an investor also consult his legal adviser to find out available remedies, including the right to cancel the agreement.
The Sunday Times compiles a checklist from financial experts:
• Do you understand what business the ICO issuer is doing?
• Does the firm have a website that sets out what it does?
• Does the ICO issuer have a legitimate business presence in Singapore, or is planning to have one? Any track record?
• Be aware that if it is a foreign firm, there may be practical legal difficulties in suing the firm or enforcing judgment.
• Who are the persons running the company, the shareholders and what is their track record?
• How is the issuer planning to use the proceeds of the ICO and has it set out its projected financials?
• What sort of rights you are entitled to as the holder of a coin?
• Has the issuer disclosed risks relating to the ICO and are you able to accept those risks?
• What is your investment risk appetite? Coin or token investments carry risks and may be more volatile than other investment products. Are you prepared to write off the coin investment substantially or completely?
• Do the coins give you rights similar to shares (ownership in a company) or debt (promise of return of coupon/interest) or a collective investment scheme? If they do, the issuer should be regulated and cannot issue coins without a prospectus lodged with MAS, said Mr Nizam.
• Do you understand how to exit from your coin investments?
• Are the coins going to be listed on an exchange to allow you the ability to convert the digital tokens into cash?
• Is the person or entity regulated by MAS?
The laws administered by MAS require disclosure of information on investment products being offered to consumers. They are also subject to conduct rules aiming to ensure they deal fairly with consumers.
To find out whether an entity is regulated by MAS, consumers can check the authority's Financial Institutions Directory on the MAS website. Consumers can also look up the MAS' Investor Alert List for a non-exhaustive list of entities that may have been wrongly perceived to be regulated by MAS. Consumer alerts on the MoneySense website also has tips on avoiding scams.
Consumers who suspect an investment scheme involving digital tokens could be fraudulent should report such cases to the police.