Regulators crack down on ICOs as one VC firm raises $1.5B to invest in bitcoin startups

Regulators around the world have indicated they consider tightening the grip around the so called initial coin offerings (ICOs), just days after one prominent venture capital (VC) company said it had raised $1.5 billion for bitcoin-related investments.

In an effort to bring ICOs under a state regulation, the Swiss financial authority FINMA became the latest watchdog to issue a statement regarding the innovative practice of fund raising. At the end of September, FINMA said it would probe into a number of ICOs taking place in the country to “determine whether regulatory provisions have been breached”.

The Swiss regulator said that even though ICOs are not currently governed by specific regulators, some parts of the procedures may already by covered by the existing legislation. It cited a few different practices including provisions on securities trading, provisions regarding collective investment schemes and others which directly related to ICOs.

The same day, US Securities and Exchange Commission (SEC), which had earlier issued a similar investor alert, came out with a statement, showing that it is now ready to put its money where its mouth is.

SEC said it had charged several business people in the USA for “defrauding investors”. The regulator froze the assets of Ukraine-born entrepreneur Maksim Zaslavskiy and his companies REcoin Group Foundation and DRC World for selling coins allegedly backed up with real estate and diamonds which did not exist, according to the statement.

REcoin, which was marketing itself as “the first ever cryptocurrency backed by real estate”, misled investors that it had already raised between $2 million and $4 million, when the actual amount was closer to $300,000, SEC said.

“Investors should be wary of companies touting ICOs as a way to generate outsized returns,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “As alleged in our complaint, Zaslavskiy lured investors with false promises of sizeable returns from novel technology.”

In the meantime, investors remain unfazed by the regulatory turmoil in the space. A few days before SEC’s latest statement, one of the largest venture capital (VC) companies Institutional Venture Partners (IVP) said it had closed a $1.5 billion fund to invest in “high-growth technology companies”. According to a number of publications, the fund will be focused primarily in bitcoin and blockchain-related investments.

IVP boasts a portfolio which includes some of the poster children of the dotcom era. The company has a committed capital of $7 billion and investments in over 300 companies, including Twitter, Slack, Snap and many others.