The number of ICOs has grown so much in recent months that it’s become clear that a part of them will end up being Ponzi schemes or some other kind of fraud. Can the investors protect themselves from the confidence men? Who can you take to court (and which court would that be) if a specific ICO in whose tokens you invested crashes? Invest Foresight asked the market experts to share their take on this problem.
Marat Safiulin, manager of the Federal Public-State Fund for the Protection of the Rights of Depositors and Shareholders
– As such, there’s no one to complain to if you buy the “wrong” token, as this is solely your choice and your risk. So, think 10 times before investing: even the majority of bona fide share issues result in financial losses for the investors. You may have some recourse if the ICO organizers knowingly gave unrealistic promises (such as a specific return on equity) to lure you into investing – in this case you can try to hold them accountable for fraud and demand compensation of losses. In the future, the situation may change with implementation of the legislative regulation of the ICOs: in this case investors will be given the instruments for judicial protection of their rights and interests.
Viktor Dostov, chairman of the Council of the Russian E-money Association
– At present, the ICOs face no adequate regulation anywhere, so it would be quite difficult to file your claims in court, if for no other reason than because the global financial industry still can’t agree whether tokens can be considered equity. In theory, investor can approach the company whose tokens he bought, but if the company went bankrupt, he shouldn’t expect a compensation. In other words, today there is no adequate protection for the ICO investors.
Petr Darakhvelidze, CBDO of Webmoney Transfer
– ICO is the response to excessive regulation and costliness of classical investment procedures, if you will, a peculiar steam of investor energy released from under the lid. As a result, everything here is a mirror image of the world of “regular” investments. “There,” you won’t be able to issue your shares without fine-grained instructions as to where, how and why litigation is possible. “Here,” in the ICO world, things are different. First, the litigation will most likely have to begin in the jurisdiction of a country, which is both geographically and legally far removed from Russia. Therefore, legal expenses abroad will most likely be higher than returns from the court victory. Second, the monetary authorities of very few countries (USA, Singapore) have clearly stated their position of cryptoinvestments, indicating that such cases will be viewed as a type of finance and investment deals. In the rest of the countries, you’ll have no case to take to the court.
Alexander Yegorov, lead analyst of the TeleTrade group of companies
– If a specific ICO crashes and you want to bring it to court, you should have an action, specifying the norms of existing legislation that have been, in your point of view, violated. You have to clearly understand what the crash means: was it the result of fraud, or did the value of your tokens fall, figuratively speaking, to zero because of the market, or were there other circumstances and consequences? If you have ascertained that there was a violation of criminal, arbitrage or civil code and you have the proofs of your rights’ violation that will be accepted in court, you have to file your lawsuit in the court of the relevant competence and jurisdiction.
Alexander Abramov, head of the laboratory for analysis of financial markets and institutions of the Russian Presidential Academy of National Economy and Public Adminsitration
– As for lodging claims if a specific ICO crashes, I think that overall there are some legislative grounds for this, and that it will be possible to reclaim your losses under law. After all, by buying tokens, you enter into some sort of a legal contract. If the system bursts, investors should expect high legal costs, as they will have to prove veracity of the contract, the absence of the sham nature of transaction, etc. Investors should also realize that until such cases have been through courts and some precedents have been set, proving your rights will be very difficult. But as soon as the precedents are set, everything will start to fall into place when it comes to protecting the rights of bona fide purchasers of these tokens.
Ivan Kapustyansky, analyst at Forex Optimum
– For all intents and purposes, the cryptocurrencies and associated processes are currently outside the law of the Russian Federation. Therefore, if an investor wants to gamble on cryptocurrencies, he has to fully comprehend the risks of such operations and understand that he’ll see no support from the state in case of unfavorable event. We’ve already seen a negative precedent. After BTC-E cryptomarket was forced to shut down, nobody compensated investors their losses – and the US law enforcement agencies are the only ones working on this case. The chance of people getting their money back is minimal. ICOs are similar to the cryptocurrencies. Investors can take part, and there are some really good projects with growth potential, but from a legal point of view the ownership of tokens doesn’t mean the real ownership of the company that finances its development with these investments. As is, the investors have no legal protection, and the ICO process is based on trust.