South Korea’s financial authorities announced on January 31, that their investigation into initial coin offerings (ICOs) led them to maintain a negative stance on the institutionalization of ICOs in the future. They added that their investigation found that ICOs lacked information disclosure for investors and some of them might violate law. Therefore, the blockchain-based cryptocurrency industry which advocates block-chain technology development through ICOs will have a gloom future for the time being.
the day, the financial authorities said that their investigation of 22 Korean companies that had ICOs between September and November in 2018 found out that the 22 Korean companies collected a total of 566.4 billion won and 33 billion won per company on average.
The financial authorities judged that even though these companies had ICOs abroad, but considering the fact that they published Korean language white papers and conducted PR activities at home, the funds were actually raised through Korean investors.
In Korea, ICOs have been basically prohibited but these companies established paper companies in Singapore and other countries and had ICOs in a roundabout way. The investigation also found out that the new cryptocurrencies issued through the ICOs were traded via four companies and prices of all of the new cryptocurrencies plunged by an average of 68% on the first trading day, expanding the possibility of giving financial damage to investors.
A bigger problem is that these companies did not disclose important information for investment decisions such as company profiles, business areas and financial statements among others. "Each company raised thousands of millions of Korean won. But they refused to disclose details of the raised funds in spite of financial authorities’ requests," said an official of Korean financial watchdogs.
In addition, the financial authorities also discovered cases of falsely advertising important matters related to ICOs along with unauthorized business activities such as the sale of cryptocurrency investment funds. The financial authorities decided to find out whether or not the companies conducted unauthorized sales activities in the Capital Market Act and committed false advertisements and frauds in the Criminal Law by asking law enforcement official to look into the ICOs.
With reference to the investigation, some ICO experts say that the government should thoroughly check the ICOs for their illegality but it is not right for the government to believe that it is necessary to maintain a negative position on ICOs due to some companies’ illegal activities. "Attracting domestic investors while having ICOs overseas is not a problem unless it does not break the Foreign Currency Transaction Act," a cryptocurrency industry official said.
“An ICO is an important tool to promote the development of blockchain technology. It is deplorable to see the government unconditionally regard ICOs as frauds," another official said.