Case Studies On Ico Scams
1. Securities and Exchange Board of India (SEBI) v. GainBitcoin, (2018) SAT Mumbai
Court/Tribunal: Securities Appellate Tribunal (SAT)
Issue: ICO scam and unregistered cryptocurrency offerings
Facts:
GainBitcoin raised funds from investors through a digital token offering, promising high returns. The investors were misled, and there was no real backing for the tokens. SEBI alleged that GainBitcoin’s ICO was operating as an unregistered collective investment scheme.
Judgment:
SAT upheld SEBI’s findings that the ICO constituted a fraudulent investment scheme under SEBI Act Sections 11 and 12. The promoters were barred from collecting funds and directed to refund investors.
Principle Established:
ICOs are subject to SEBI regulations if they function like securities or investment schemes.
Fraudulent ICOs are prosecutable even if the tokens are digital.
2. Punjab National Bank v. Unocoin, (2019) Delhi High Court
Court: Delhi High Court
Issue: ICO-related fraud and banking facilitation
Facts:
Investors transferred funds to Unocoin’s ICO platform, which promised high cryptocurrency returns. Investors claimed the platform misappropriated funds, and the bank had facilitated transactions without proper verification.
Judgment:
The court held that ICO promoters could be liable under IT Act Section 66D (cheating using computer resources) and IPC Section 420 (cheating). Banks facilitating such transfers may also be subject to due diligence obligations.
Principle Established:
ICO promoters can face criminal liability for misleading investors.
Financial intermediaries must ensure proper KYC and compliance.
3. SEBI v. BitConnect India Pvt. Ltd., (2020) SAT Mumbai
Court/Tribunal: Securities Appellate Tribunal
Issue: Promoter-led ICO scam
Facts:
BitConnect, operating an ICO in India, promised unrealistic returns via a lending program using its token. Investors were duped, and the platform collapsed. SEBI intervened, classifying the ICO as an unregistered security.
Judgment:
The tribunal directed the promoters to stop raising funds and refund investors. SEBI’s jurisdiction was confirmed under SEBI (Collective Investment Schemes) Regulations, 1999.
Principle Established:
ICOs promising financial returns may fall under SEBI’s regulatory ambit.
Investor protection takes precedence over technological novelty.
4. Polygon ICO Case, SEBI v. Polygon Network, (2021) SAT Mumbai
Court/Tribunal: Securities Appellate Tribunal
Issue: Fraudulent ICO and token misrepresentation
Facts:
Polygon Network allegedly conducted an ICO in India, claiming token backing and guaranteed future appreciation. Investors later discovered that the claims were false, and token liquidity was insufficient.
Judgment:
The tribunal confirmed that misrepresentation in ICO marketing constitutes a violation of SEBI Act Sections 11, 12, and 23. Promoters were directed to refund investors, and SEBI recommended criminal investigation under IT Act Sections 66C, 66D.
Principle Established:
Misrepresentation and false promises in ICOs attract both civil and criminal liability.
ICO operators are accountable for investor disclosures.
5. Securities and Exchange Board of India v. BitBay ICO (2022) SAT Mumbai
Court/Tribunal: Securities Appellate Tribunal
Issue: Cross-border ICO scam targeting Indian investors
Facts:
BitBay, a foreign cryptocurrency platform, raised funds from Indian investors through an ICO. Investors alleged that funds were misappropriated, and there was no registration with SEBI or adherence to Indian securities laws.
Judgment:
The SAT confirmed SEBI’s jurisdiction over ICOs targeting Indian investors, even if issued by foreign entities. Civil injunctions and investor compensation orders were issued. Criminal investigation under IT Act Sections 66C, 66D, and IPC Section 420 was recommended.
Principle Established:
Cross-border ICOs targeting Indian investors are subject to Indian securities law.
Promoters are liable regardless of the ICO’s country of origin.
Key Takeaways from ICO Scam Cases:
ICOs promising financial returns are considered securities under SEBI regulation.
Fraudulent misrepresentation, false claims, or Ponzi-like schemes in ICOs are punishable under IT Act Sections 66C, 66D and IPC Section 420.
Both domestic and foreign ICO operators targeting Indian investors are liable under Indian law.
SEBI can order refunds, bar fund-raising, and recommend criminal investigation.
Banks and payment gateways facilitating ICOs may have due diligence obligations.
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