The future of raising finance - a new opportunity to commit fraud: a review of initial coin offering (ICOs) scams

Milind Tiwari, Adrian Gepp, Kuldeep Kumar

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Over one billion US dollars were invested in blockchain in 2016. The potential application of blockchain extends far beyond cryptocurrencies. One use of blockchain is an Initial Coin Offering (ICO), a digital method of raising finance involving issuance of tokens in exchange for cryptocurrencies or fiat money. It is a cheaper, easier and quicker way to raise funds compared with traditional public offerings. However, it has raised a new opportunity for fraud. An estimated 10% of ICO funds have been lost to fraud. Using case-study analysis, this study determines characteristics of such fraud schemes and the regulatory changes made in response to them. The study reveals key lessons for investors in terms of proactive steps that can be taken to protect themselves from being victims, for issuers to ensure awareness and take steps to secure investors’ trust, and for regulators to promote a safe environment. To the best of our knowledge, this study is the first to document the effect of ICO fraud schemes on the regulatory environment, which is going through a series of amendments to provide protection against such fraudulent schemes. Additionally, it provides direction for future research to further investigate the risks of this new method of raising funds.

Original languageEnglish
JournalCrime, Law and Social Change
Early online date23 Nov 2019
DOIs
Publication statusE-pub ahead of print - 23 Nov 2019

Fingerprint

Fraud
Numismatics
fraud
finance
Financial Management
investor
Fund Raising
dollar
amendment
money

Cite this

@article{2028a0aeaa2f4012a2bf489027873bce,
title = "The future of raising finance - a new opportunity to commit fraud: a review of initial coin offering (ICOs) scams",
abstract = "Over one billion US dollars were invested in blockchain in 2016. The potential application of blockchain extends far beyond cryptocurrencies. One use of blockchain is an Initial Coin Offering (ICO), a digital method of raising finance involving issuance of tokens in exchange for cryptocurrencies or fiat money. It is a cheaper, easier and quicker way to raise funds compared with traditional public offerings. However, it has raised a new opportunity for fraud. An estimated 10{\%} of ICO funds have been lost to fraud. Using case-study analysis, this study determines characteristics of such fraud schemes and the regulatory changes made in response to them. The study reveals key lessons for investors in terms of proactive steps that can be taken to protect themselves from being victims, for issuers to ensure awareness and take steps to secure investors’ trust, and for regulators to promote a safe environment. To the best of our knowledge, this study is the first to document the effect of ICO fraud schemes on the regulatory environment, which is going through a series of amendments to provide protection against such fraudulent schemes. Additionally, it provides direction for future research to further investigate the risks of this new method of raising funds.",
author = "Milind Tiwari and Adrian Gepp and Kuldeep Kumar",
year = "2019",
month = "11",
day = "23",
doi = "10.1007/s10611-019-09873-2",
language = "English",
journal = "Crime, Law and Social Change",
issn = "0925-4994",
publisher = "Springer",

}

The future of raising finance - a new opportunity to commit fraud: a review of initial coin offering (ICOs) scams. / Tiwari, Milind; Gepp, Adrian; Kumar, Kuldeep.

In: Crime, Law and Social Change, 23.11.2019.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - The future of raising finance - a new opportunity to commit fraud: a review of initial coin offering (ICOs) scams

AU - Tiwari, Milind

AU - Gepp, Adrian

AU - Kumar, Kuldeep

PY - 2019/11/23

Y1 - 2019/11/23

N2 - Over one billion US dollars were invested in blockchain in 2016. The potential application of blockchain extends far beyond cryptocurrencies. One use of blockchain is an Initial Coin Offering (ICO), a digital method of raising finance involving issuance of tokens in exchange for cryptocurrencies or fiat money. It is a cheaper, easier and quicker way to raise funds compared with traditional public offerings. However, it has raised a new opportunity for fraud. An estimated 10% of ICO funds have been lost to fraud. Using case-study analysis, this study determines characteristics of such fraud schemes and the regulatory changes made in response to them. The study reveals key lessons for investors in terms of proactive steps that can be taken to protect themselves from being victims, for issuers to ensure awareness and take steps to secure investors’ trust, and for regulators to promote a safe environment. To the best of our knowledge, this study is the first to document the effect of ICO fraud schemes on the regulatory environment, which is going through a series of amendments to provide protection against such fraudulent schemes. Additionally, it provides direction for future research to further investigate the risks of this new method of raising funds.

AB - Over one billion US dollars were invested in blockchain in 2016. The potential application of blockchain extends far beyond cryptocurrencies. One use of blockchain is an Initial Coin Offering (ICO), a digital method of raising finance involving issuance of tokens in exchange for cryptocurrencies or fiat money. It is a cheaper, easier and quicker way to raise funds compared with traditional public offerings. However, it has raised a new opportunity for fraud. An estimated 10% of ICO funds have been lost to fraud. Using case-study analysis, this study determines characteristics of such fraud schemes and the regulatory changes made in response to them. The study reveals key lessons for investors in terms of proactive steps that can be taken to protect themselves from being victims, for issuers to ensure awareness and take steps to secure investors’ trust, and for regulators to promote a safe environment. To the best of our knowledge, this study is the first to document the effect of ICO fraud schemes on the regulatory environment, which is going through a series of amendments to provide protection against such fraudulent schemes. Additionally, it provides direction for future research to further investigate the risks of this new method of raising funds.

UR - http://www.scopus.com/inward/record.url?scp=85075381660&partnerID=8YFLogxK

U2 - 10.1007/s10611-019-09873-2

DO - 10.1007/s10611-019-09873-2

M3 - Article

JO - Crime, Law and Social Change

JF - Crime, Law and Social Change

SN - 0925-4994

ER -