HK’s SFC halts ICO to public, orders return of tokens to investors

In the latest action by a financial regulator against a cryptocurrency entity, Hong Kong’s Securities and Futures Commission today said it had ordered a Hong Kong-based company called Black Cell Technology Ltd to halt its initial coin offering and to “unwind ICO transactions for Hong Kong investors by returning them the relevant tokens”.

In its statement, the SFC said it had taken action “over concerns that Black Cell had engaged in potential unauthorised promotional activities and unlicensed regulated activities”.

Specifically, it noted that the Black Cell initial coing offering (ICO) would qualify as a “collective investment scheme”, which would normally require the SFC’s approval to be permitted to be marketed to the public.

The SFC’s move  was announced in a statement on the SFC’s  website on Monday evening Hong Kong time, and came six months after the People’s Bank of China unexpectedly banned ICOs, which was subsequently said to have prompted Mainland Chinese crypto-issuers to shift their operations to the Special Administrative Region.

The Chinese ICO ban was immediately followed by other crackdowns, including by South Korea’s financial regulator, and a few days after that, by the EU and UK.

“In addressing [the] SFC’s regulatory concerns, Black Cell has also undertaken not to devise, set up or market any scheme that constitutes a collective investment scheme  unless in compliance with the relevant requirements under the Securities and Futures Ordinance,” the SFC added.

According to the SFC, Black Cell had been promoting the sale of its digital tokens, called KROPS, through its website, www.mykrops.com – which it noted was accessible to the Hong Kong public – “with the pitch that the ICO proceeds would be used to fund the development of a mobile application and holders of the tokens would be eligible to redeem equity shares of Black Cell”.

Spokespeople from Black Cell weren’t immediately available for comment.

The Mykrops website shows extensive links with the agriculture industry, and a base in the Philippines, as well as a reference to an “agri mobile app” that was launched in 2016.

“[The] KROPS e-commerce platform enables the agricultural community to look around and shop for the products near you, at the price of your choice,” it says at one point.

‘Cryptocurrency risks’

The SFC concludes its announcement of its halting of the Black Cell ICO  by inviting readers to visit a statement it posted last month, which is headed “SFC warns of cryptocurrency risks”.

“The Securities and Futures Commission once again alerts investors to the potential risks of dealing with cryptocurrency exchanges and investing in initial coin offerings,” this statement begins.

“Following a statement on ICOs released on 5 September 2017, the SFC has taken regulatory action against a number of cryptocurrency exchanges and issuers of ICOs.

“The SFC has sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong, warning them that they should not trade cryptocurrencies which are “securities” as defined in the Securities and Futures Ordinance without a licence.”

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is Chief Correspondent for International Investment. She is a US-trained journalist who has worked in Rome, New York City and London, covering among other things the fashion and retailing industries, the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

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