After a U.S. SEC statement this month on celebrity endorsements to encourage the public to invest in Initial Coin Offerings (ICOs) that may be unlawful, EU financial regulator ESMA has issued a strong warning over ICO risks for investors and highlighted the rules applicable to firms in the space.
The European Securities and Markets Authority (ESMA), a European Union (EU) financial regulatory body and European Supervisory Authority located in Paris, today issued two Statements on Initial Coin Offerings (ICOs), one on risks of ICOs for investors and another on the rules applicable to firms involved in ICOs.
The statements from the EU regulator follow a 29% plunge in the value of bitcoin at the end of last week and the U.S. Securities & Exchange Commission firing a broadside earlier this month (November 2) over endorsements of ICOs by “celebrities and others” using social media networks to encourage investors to make investments.
Such endorsements “may be unlawful”, the SEC stated, if they did not disclose the nature, source and amount of any compensation paid – directly or indirectly – by the company in exchange for the endorsement.
And, just last Wednesday, SEC Commissioner Jay Clayton said so-called initial coin offerings looked like securities in many cases. It could signal a toughening position from the agency is coming over this financing method that has seen over $2 billion raised this year through such offerings.
In an unscripted remark in the midst of a keynote speech delivered at the Practising Law Institute’s 49th annual Institute on Securities Regulation in New York, Clayton said: “I have yet to see an ICO that does not have a sufficient number of hallmarks of a security.”