Hong Kong’s Securities and Futures Commission (SFC) has halted the initial coin offering (ICO) of marketplace startup Black Cell Technology on the grounds that the offering constituted an unregistered Collective Investment Scheme (CIS).
Black Cell operates a website, mykrops.com, which advertises the business of Krops and publicly offers tokenized shares. Black Cell’s website describes its business as a platform where users can gain “access to every food source in the world, from the biggest farms to the smallest backyard”. The company calims that its mobile app “provides access to supply and demand information to aid farmers in production and assist buyers in purchasing.”
According to the SFC, they found that Black Cell had promoted an ICO to sell “Krop” tokens to investors through its website accessible by 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.
The regulator said such arrangement would qualify as a Collective Investment Scheme, which under local regulations must be pre-registered and authorized.
“Where an ICO involves an offer to the Hong Kong public to acquire an interest or participate in a CIS, prior authorization or licensing requirements under the SFO may be triggered unless an exemption applies,” the SFC said. “An interest in a CIS is regarded as “securities” as defined in the Securities and Futures Ordinance (SFO).”
In response, Black Cell halted its ICO to the Hong Kong public and agreed to unwind ICO transactions for Hong Kong investors by returning them the relevant tokens. Black Cell has also undertaken not to devise, set up or market any scheme that constitutes a CIS unless in compliance with the relevant requirements under the SFO.
The SFC reminded ICO issuers to seek legal or other professional advice if they are in doubt about the applicable legal and regulatory requirements. Investors are also reminded to exercise caution before participating in ICO.
In late January of this year, the Philippines Securities and Exchange Commission (SEC) filed a similar cease-and-desist against Black Cell for selling unregistered securities. At the time, the SEC identified local resident Joseph Calata and three other affiliated registered companies as being associated with the ICO.
“The commission will institute the appropriate administrative and criminal action against any person or entities found to act as solicitors, information providers, salesmen, agents, brokers dealer or the like for and in behind of the subject corporations,” the SEC said at the time.
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