MAS warns coin offering issuer over Securities Act breach

In May 2018, the MAS warned eight digital token exchanges in Singapore not to facilitate trading in digital tokens that are securities or futures contracts without the regulator's authorisation.
In May 2018, the MAS warned eight digital token exchanges in Singapore not to facilitate trading in digital tokens that are securities or futures contracts without the regulator's authorisation. PHOTO: ST FILE

The Monetary Authority of Singapore (MAS) has warned an initial coin offering (ICO) issuer it should not proceed with its securities token offering in Singapore until it can fully comply with regulatory requirements under the Securities and Futures Act (SFA).

The Straits Times understands that the ICO issuer is Jules Corp, a Singapore-based education-software technology company. The company did not respond when contacted yesterday.

This is the second time MAS has issued such a warning. In May last year, the financial regulatory authority warned eight digital token exchanges in Singapore not to facilitate trading in digital tokens that are securities or futures contracts without the regulator's authorisation. At the time, it had also warned another ICO issuer to stop the offering of its digital tokens here.

According to the MAS announcement yesterday, the issuer had intended to rely on an exemption under the SFA, which allows an issuer to make an offer of securities to accredited investors without registering a prospectus with MAS. The exemption from prospectus registration is, however, subject to certain conditions, including a requirement not to advertise the offer.

The issuer in this case failed to comply with the advertising restriction when its legal advisers put out a LinkedIn post accessible to the public calling attention to the offer. Thus, the issuer would not be able to rely on the exemption from prospectus registration. The issuer has suspended its global offering of securities tokens.

The Straits Times understands that the legal advisers are Duane Morris & Selvam LLP. When contacted yesterday, the law firm did not respond.

Mr Lee Boon Ngiap, assistant managing director (Capital Markets) at MAS, said: "Where an offer is made to the public, a prospectus is required to ensure that investors are provided with all the information to make informed investment decisions. Some offers may be made without a prospectus if they are limited to a restricted group of persons or to those who have the means to look after their own interests. Such offers are subject to strict conditions such as advertising restrictions. MAS will not hesitate to act if issuers contravene the disclosure requirements under the SFA."

For digital token offerings, MAS reminded investors that the risks include a highly speculative valuation, heightened risk of fraud and lack of a proven track record, which makes it difficult for investors to establish the credibility of such offerings.

For digital token offerings, MAS reminded investors that the risks include a highly speculative valuation, heightened risk of fraud and lack of a proven track record, which makes it difficult for investors to establish the credibility of such offerings.

US law firm Gibson Dunn & Crutcher partner Robson Lee said: "The issuers of security tokens invariably do not have the requisite management and financial track records unlike traditional IPOs. Investors should not buy on hope, hold in greed and subsequently come to grief when their investments 'evaporate' because the underlying business is not sustainable, or unlikely to be profitable."

A version of this article appeared in the print edition of The Straits Times on January 25, 2019, with the headline 'MAS warns coin offering issuer over Securities Act breach'. Print Edition | Subscribe