The Zambian Securities and Exchange Commission (SEC) has warned the general public to desist from investing in an initial coin offering (ICO) promoted by a suspicious company.
According to a report by The Lusaka Times, the company was not registered with the country’s regulatory body and was therefore not authorized to give investment advice.
Cases of fraudulent ICO projects are not uncommon, and various regulators and government agencies have taken time to warn investors against investing in investment schemes that especially promise exorbitant returns on investment.
ICO Promises HYIP-Style 1000% ROI in Two Years
In a statement by the Chief Executive Officer of the Zambia SEC, Philip Chitalu, a company known as Kwakoo, was soliciting investment funds from Zambians for its ICO, Onyxcoin.
Chitalu also added that the company’s activities, which include promotion and soliciting of funds for a product like Onyxcoin, fell under the purview of the Securities Act law.
The country’s Securities Act, No. 41 of 2016, states that any person or persons offering investment advice for assets viewed as securities, or engaging in trading of such assets in Zambia, must seek approval from the SEC, except in cases where the law exempts such person/company.
With the above definition, Kwakoo and its promoters’ actions were in contravention of Zambia’s securities law. Apart from failing to register with the SEC, Kwakoo lured investors with hyperbolic predictions for its Onyxcoin, stating that the cryptocurrency’s value would skyrocket to 1000% by June 2021.
However, the Zambia CEO warned investors to be wary about the company and its representatives, stating that Kwakoo isn’t licensed or registered with the regulatory body to offer investment advice or seek funds from Zambians to invest in any financial product within or without the country.
Furthermore, Chitalu alerted the public to the risks that came with ICOs, stating that the fundraising venture was not standard in Zambia. Also, the SEC would grant regulatory status depending on the ICO.
Cryptocurrency Largely Unregulated in Zambia
Currently, there is no robust regulatory landscape in Zambia. The SEC released a notice concerning bitcoin, other virtual currencies, and ICOs.
The notice recognized the growth of the cryptocurrency market, and how people are becoming more receptive towards bitcoin, altcoins, and ICOs. However, the SEC warned citizens that bitcoin and other virtual currency were unregulated in the country.
Furthermore, the SEC states:
“The Commission would like to urge any individuals or entities that are currently investing in or intend to invest in cryptocurrencies and related products/assets to exercise restraint and caution as they do so as the products/assets are largely unregulated and not subject to the jurisdiction of the Commission.”
Also, in terms of determining if any crypto asset is can be classified as “securities”, the SEC noted that ICOs likely had characteristics of financial securities.
In October 2018, the Bank of Zambia, the country’s apex bank, stated that bitcoin and other digital currencies were not a legal tender in the country. Furthermore, investors trading in cryptocurrencies were doing so at their own risk.
The country’s Drug Enforcement Commission (DEG) arrested three fraudsters who were involved in money laundering worth over $2 million. Per the report, the scammers lied to the investors that they would help them invest their funds in cryptocurrency.
Gone Are the Wild West Days of Unregulated ICOs
Apart for the Zambia SEC warning against falling into the trap of fraudulent ICO and crypto schemes, its U.S counterpart has issued similar warnings.
According to a Blockonomi report back in April 2019, two American financial regulators, the Securities and Exchange Commission, and the Commodity Futures Trading Commission (CFTC) advised investors to beware of fake bitcoin investment websites.
The investors noted that these websites offered unsuspecting investors high returns on little investments and proceeded to give a list of warning signs to protect investors against fraudulent bitcoin investment schemes.
Famous celebrities, heavyweight boxer Floyd Mayweather, and DJ and songwriter, DJ Khaled, who promoted the Centra ICO, were fined by the US SEC.