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Swiss financial watchdog finds $90 million initial coin offering illegal

LONDON (reuters) – switzerland’s financial watchdog said on Wednesday, is the company behind a $90 million initial coin offering (ICO) took illegal money from the investors, the emphasis on the willingness by regulators to apply the traditional market rules to cryptocurrency-related fundraising.

FILE PHOTO: The logo of the Swiss Financial Market Supervisory Authority FINMA is seen outside their headquarters in Bern, Switzerland, April 5, 2016. REUTERS/Ruben Sprich/File Photo

The swiss company Envion AG, which is now in liquidation, accepted on more than 90 million Swiss francs ($91 million) of at least 37,000 investors in exchange for a bond-like tokens issued without a license, the Swiss Financial Market Supervisory Authority (FINMA) said in a statement.

FINMA said the conditions under which the tokens were issued were not the same for all investors; that the prospectus does not comply with the minimum requirements; and that Envion not have an internal auditing arm – as a legal obligation.

Envion the former chief executive Matthias Woestmann said in a statement that a FINMA report, which has not been made public, says the researchers could not find a misappropriation of funds, and that it was clear, there was no intent to harm the investors.

“There was no misappropriation of assets,” he said.

Policy makers around the world have struggled with how the legal frameworks for ICOs and the so-called security token services (stos), where tokens with features akin to traditional securities are sold.

The new forms of fundraising have allowed start-ups founded on cryptocurrency technologies such as blockchain to quickly raise capital through the issuance of virtual tokens or coins. But the risk of fraud and lack of transparency about who owns cryptocurrencies have made regulators wary.

Some countries, such as Switzerland, have moved to the treatment of ICOs as effects, the application of the rules that are used for traditional capital markets. That means a step in the regulations for many projects, subjecting them to the trade laws, and detailed requirements of disclosure and protection of investors.

Other countries, such as China and India, have banned ICOs altogether. The U.S. Securities and Exchange Commission last year considered that some ICOs could count as effects.

Switzerland has become a global leader in the ICOs and stos. Six of the largest 15 ICOs and stos since 2016 have taken place in the country, according to PwC.

Last year, the worldwide number of successful ICOs and stos more than doubled, to more than 1,130 a year earlier, PwC said.

If FINMA examined Envion, a judge in the canton of Zug – known as “Crypto Valley” for the concentration of the virtual currency-related companies, opened the bankruptcy procedure against the company “organisational shortcomings”.

As a result, FINMA said, further measures against the company were not needed.

Reporting by Tom Wilson; Additional reporting by John Revill; Editing by Mark Potter

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