As the new age of exit scams or “exit hacks” remains unruly, both regulators and crypto experts are expressing concern over the lack of accountability in the space—making it a breeding ground for opportunistic actors.
At the Future of Fintech conference in New York yesterday, Adena Friedman, the CEO of Nasdaq, expressed worry about the trend of ICO’s, which she says take advantage of investors, particularly beginners.
“To make it no rules at all, when companies can just willy-nilly take people’s money and offer no information at all, with no governance, that sounds to me like you’re taking advantage of people,” Friedman said.
And based on what we’ve seen through the past few years, this “real concern” is very well-founded. At the industry’s current state, it’s pretty difficult to legally prove any negligence—even outright malfeasance, when ICO founders fail to deliver what they have promised.
“In ICO space none of that is available, and it’s all being bought by retail,” she said. “I have real concern on lack of transparency, oversight, and accountability that these companies have as they’re going out to raise capital through an ICO.”
Throughout the past years, the industry has seen a new trend of exit scams in the form of “exit hacks” becoming rampant—or at least, that’s what rumour mills say. This has been suspected of several ICO projects that quickly collapsed shortly after amassing millions of dollars from a token sale. Hacks have been the go-to scapegoat for the fall of several projects, and its founders have mostly escaped unscathed by the law so far since it’s hard to prove such allegations at the moment.
But even cryptocurrency experts have been saying this practice will end soon—and that the SEC can still go after those who have done it in the past.
In March, nChain chief scientist Dr. Craig Wright, seemingly vexed at having to speak to a room full of people who were all launching ICO’s, gave a stern warning that their fun days will soon be over. He said that just because authorities are not taking action now, doesn’t mean they won’t in the future—that people don’t just “get away with it.”
“The law is law,” Wright said. “You try standing in front of a judge and telling him otherwise, and you’re going to be sorry because they can reach back in time. The SEC doesn’t think about what you’re doing now. They have a 20-year timeframe. You raise money and you don’t pay it back, they can reach back. Not ‘you got away with it.’”
Civic CEO Vinny Lingham is not a fan of the opportunistic trends in the cryptocurrency space either.
“People will raise money by whatever way they possibly can—if it means bending the rules, changing the system, and unsuspecting people will wind up putting up the money to buy it. But just because you can raise money in a certain way doesn’t mean you should,” Lingham said.