SEC warns public vs investing in virtual currency

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The SEC building, in file photo by bworldonline.com

MANILA – The Securities and Exchange Commission (SEC) has cautioned the public about the risks of investing in virtual currency.

In an advisory, the SEC Enforcement and Investor Protection Department advised people to take precautions in dealing with initial coin offerings (ICO) entities.

“If a promoter, issuer, broker or salesman guarantees returns, if a potential investment sounds too good to be true, or if you are pressured to act hastily, please exercise utmost caution and diligence and be wary of the risk that your investment might be lost,” it said.

The SEC issued the warning after detecting that certain companies, individuals or groups of persons were luring the public, either through popular social media platforms or through their own independent website, to participate in so-called ICO and to purchase the corresponding virtual currency.

An ICO is the first sale and issuance of a new virtual currency to the public, usually for the purpose of raising capital for start-up companies or funding independent projects.

In an ICO campaign, a percentage of the total available virtual currency is sold to interested buyers in exchange for fiat currency, another virtual currency, or another asset or security.

Virtual currency refers to a digital representation of value issued and controlled by its developers and used and accepted among the members of a specific community or users.

The SEC said that while some of these new virtual currencies followed the nature of a security as defined by the Securities Regulation Code (SRC), these were neither guaranteed by any Central Bank nor backed by any commodity unlike ordinary securities.

It said a security included an investment contract which referred to a contract, transaction or scheme whereby a person invested his money in a common enterprise and led to expect profits primarily from the efforts of others.

The SEC further said there was a strong possibility that the virtual currency was a security under the jurisdiction of the Commission when it was analogous to any of the types of securities under Section 3.1 of the SRC. It thus has to be registered and necessary disclosures have to be made for the protection of the investing public, it added.

When the scheme involves the sale of securities to the public, the SRC also requires that such securities offered are duly registered and that the appropriate license and/or permit to sell securities to the public are issued to the corporation and/or its agents.

Likewise, those who act as salesmen, brokers, dealers or agents of ICO entities in selling or convincing people to invest in the investment scheme being offered by ICO companies must be registered with the SEC.

“Accordingly, those who invite or recruit other people to join or invest in this venture or offer investment contracts or securities to the public may be held criminally liable or accordingly sanctioned or penalized,” it added.