On March 19, 2018, the Securities and Futures Commission (SFC) of Hong Kong issued a statement about Black Cell Technology Limited, which, after an SFC action, agreed to "unwind" its initial coin offering (ICO) to the Hong Kong public for digital tokens called KROPS. The SFC expressed concern that Black Cell had pursued "unauthorized promotional activities and unlicensed regulated activities."
The statutory body determined that, as structured, Black Cell's ICO would be considered a collective investment scheme (CIS).
"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 [Securities and Futures Ordinance] may be triggered unless an exemption applies," wrote the commission. "An interest in a CIS is regarded as 'securities' as defined in the SFO."
As such, Black Cell lacked appropriate registration and the company was asked to provide refunds to Hong Kong investors. The terms and conditions on the Black Cell website now read:
"The following token sale is not open for American citizens and/or US residents, Hongkong [sic] citizens, as well as in the Philippines and its citizens. It is also not open to any citizen or resident of a country that does not allow participation."
However, at the time of writing, it appears that Black Cell's associated website remains operational and it's unclear what protocols, if any, the company has implemented to exclude prohibited buyers. The Black Cell and KROPS teams did not immediately respond to requests for comment.
In January 2018, the Securities and Exchange Commission of the Philippines issued a cease-and-desist order to Black Cell as well as its related companies and employees. However, a search of the US Securities and Exchange Commission's website did not return any results related to Black Cell Technology Limited or KROPS.
This ICO seems to be exemplary of the challenges regulators face due to the global nature of business and fundraising undertaken through digital currencies. Even if one jurisdiction shuts down an offering, that doesn't mean that the ICO will just go away quietly.
Although the Hong Kong SFC has allowed for investment in American-issued bitcoin derivatives (as long as financial intermediaries possess proper licensure), it appears that the commission is more wary about the ICO market.