Initial Coin Offerings - an unregulated minefield
Initial Coin Offerings (or ICOs) have become more common in the last couple of years thanks to the increased interest in cryptocurrencies. Bitcoin is the most common of those currencies and since its announcement in early 2009, has been a constant source of interest. However, despite the rise in popularity of cryptocurrencies, they are still largely unregulated in the UK.
Given the recent surge in interest following Bitcoin’s peak in value in December 2017, perhaps unsurprisingly the Treasury Committee announced yesterday that it is launching a new inquiry into digital currencies and distributed ledger technology.
As you might expect, Bitcoin and other cryptocurrencies (such as Ethereum and Litecoin) do not exist in physical form and utilise Blockchain technology for their transactions. Broadly, the Blockchain is a form of decentralised peer-to-peer system where transactions are not reliant on any third party record or action, for example a bank in financial transactions, and instead is recorded for all those connected to the relevant network to see through ‘blocks’ in the chain. The emergence of Blockchain and cryptocurrencies has paved the way for fundamental re-thinking of how businesses can operate, including the concept of an ICO.
There are many different types of ICO, but the most common type involves the issue of a token in exchange for ‘payment’ using an existing cryptocurrency (such as Bitcoin). In theory, the new token could have a secondary market and later be traded on exchanges, for example, or be used to purchase the use of goods and services from the issuer. Each ICO will be different but they have become increasingly common through 2017.
By way of process, the person or business offering the ICO will usually draft a ‘white paper’ which outlines the technical details of the project the ICO will fund for ‘investors’ to consider. ICOs tend to fix the number of coins or tokens on offer prior to their sale and may offer early ‘investors’ preferential rates or more coins for their money. Though a number of ICOs have been successful, it is not difficult to find examples of ICOs which have not generated any return at all for investors and seen them lose their original investment.
Recently the FCA has offered stern warnings to investors considering investing in ICOs, labelling them “very high-risk, speculative investments” and has highlighted the lack of regulation or investor protection and potential for fraud. In particular, they point out white papers can be “unbalanced, incomplete or misleading”. In addition to fraud, investors may be at risk due to misleading or false statements made in a white paper. The most obvious of these might be a promise of a certain level of return on an investment within a certain period of time. Where representations are made and relied on by investors, if they are later shown to be false, that investor may have a claim in misrepresentation and/or breach of contract.
Litigation is beginning to appear in respect of ICOs in the US and, given their surge in popularity, can be expected in other jurisdictions as ICOs continue to be a popular method of raising capital.
For any questions regarding disputes arising from an ICO, please do not hesitate to contact our Litigation team. Alternatively, for queries relating to the regulatory aspects of ICOs, our FinTech team has a wealth of experience advising businesses and investors and would be happy to assist, please contact William Garner.
This article was written by Jamie Cartwright and Thomas Plowman. For more information, please contact Jamie on +44 (0)1483 252618 or at jamie.cartwright@crsblaw.com or Thomas on +44 (0)1483 252 618 or at thomas.plowman@crsblaw.com.
Our thinking
Stephen Burns
PART 36— A move towards greater flexibility?
Discussing the possibility of the Part 36 regime opening up with recent developments.
Hanh Nguyen
The hurdles in establishing retrospective validation of post-petition dispositions
A discussion on the key takeaways from ICC Judge Barbers recent case ruling.
Rebecca Davies
Islamic Finance News reports on the appointment of Rebecca Davies to Legal Director in our Middle East team
Islamic Finance News reports on the appointment of Rebecca Davies to Legal Director in our Middle East team
Peter Smith
Building the Case for Family Business Arbitration in the GCC Region
The GCC has one of the highest concentrations of family businesses anywhere in the world.
Emma Preece
EG quotes Emma Preece on the Picturehouse and BNY Mellon rent arrears cases
“The case is being closely watched by landlords and tenants alike as the impact of the pandemic lives on in the commercial property sector”
Ghassan El Daye
The Business Breakfast interviews Ghassan El Daye on the legal procedures surrounding international extradition
The Business Breakfast interviews Ghassan El Daye on the legal procedures surrounding international extradition
Jason Freedman
Nowhere to go – Recent High Court case highlights roadblock to overcoming director deadlock
Rachel Warren
Financier Worldwide quotes Rachel Warren on the UK’s Economic Crime Act
Evaluating the UK’s Economic Crime Act
Pierre Bydzovsky
Update on FIFA-related proceedings in Switzerland
An update on the TV rights appeal trial for the World Cups and the on-going trial against former FIFA president and former UEFA president.
Stephanie Bonnello
Stephanie Bonnello writes for the Practical Law Dispute Resolution blog on witness evidence
When are witness summaries permitted instead of witness statements and when should material be struck out from a witness statement?
Stephanie Bonnello
Witness evidence: when are witness summaries permitted instead of witness statements and when should material be struck out from a witness statement?
Witness summaries discussed in the libel case brought by Rebekah Vardy against Coleen Rooney.
Oliver Auld
Unexplained Wealth Orders & Trustees
Learn about Unexplained Wealth Orders, what they are, who can obtain them and the implications that exist for trustees.
Katy Ackroyd
“Serious irregularity” in arbitration proceedings: section 68 of the Arbitration Act 1996 under the spotlight.
An analysis of an arbitration award set aside by the High Court on grounds that the arbitrator had breached his general duty of fairness.
Sonia Kenawy
Cryptocurrency: a novel option for security for costs?
Is cryptocurrency a help or a hindrance in security for costs applications?
Simone Sancandi
Sports Arbitration Rules and Roster of Dedicated Arbitrators
The Bahrain Chamber of Disputes Resolution publishes a brand-new set of Sports Arbitration Rules.
Joe Edwards
Donoghue v Stevenson: 90 years on from a snail and a bottle of ginger beer
Sara Sheffield
Developments in the UAE
The rising strength of the United Arab Emirates as a commercial powerhouse has continued as the Covid-19 pandemic recedes.
Guy Bud
The Changing Face of IR35: Atholl House and Kickabout in the Court of Appeal
Determining employment status, a controversial and difficult question.
Sonia Kenawy
Sonia Kenawy writes for New Law Journal on cryptocurrency and security for costs
Sonia Kenawy writes for New Law Journal on cryptocurrency and security for costs
Charlotte Healy
Charlotte Healy and Katie Bewick write for Pharmacy Business on expert determination
Charlotte Healy and Katie Bewick write for Pharmacy Business on expert determination