ESMA Warning on Fraudulent ICO Tokens

ESMA Warning on Fraudulent ICO Tokens


The European Securities and Market Authority (ESMA) has today issued a timely warning to investors about the fraudulent nature of tokens issued by some ICO service providers.

It warned that many of these activities likely border on the illegal and that consumers risk being adversely affected. The warning is designed to jolt ICO investors into being more diligent with their investment choices as they point out that investable tokens often carry no value over the long-term and are not covered by current, applicable regulations. 

ESMA also suggested that this situation could affect other stakeholders in the ICO markets aside from investors – including marketing agencies and other service providers who often accept payment for services in the native token of an ICO.

Nature of Fraud

To underscore the extent to which some investors are indeed getting a raw deal, the following situations were pointed to as the means by which fraud and other illegal activities are able to thrive within the ICO sector:

Pre-sale processes that fleece the public by giving discounts to inside investors at the expense of the former

Incentives are being offered to token buyers by community managers who conceal the true nature of the tokens

Marketing firms are pushing tokens without rendering explicit the marketing nature of the operation.

This latest declaration by ESMA, aimed at bringing the attention of a wider public to rampant fraudulent activity within the ICO space, is rendered all the more noteworthy since its last such pronouncement was only made in 2008 when public sentiment was crying out for guidance in the context of the biggest financial crash since 1929.

Whilst ESMA’s remit is formally restricted to its European geography, the announcement nonetheless has had reverberations further afield as regulators elsewhere try to grapple – sometimes with limited resources – with abuses within the ICO space.

It remains essential for any potential ICO investor to be diligent in their background research in relation to an ICO and to ensure that they can afford to lose what they seek to invest.