The Australian Securities and Investments Commission has warned retail investors of suspicious investment opportunities in digital gold vaults by unlicensed financial services entities, which lure consumers with the promise of payment for recruitment and referral.
According to the financial watchdog, these unlicensed entities use online articles and social media posts and groups, such as Instagram and Facebook, to provide details about the opportunities, targeting the consumer’s network of family and friends.
Digital gold vaults in exchange for passive income?
The goal is to get Australian residents to invest by obtaining the rights to use a digital gold vault with a certain storage capacity and for a specified period of time, ASIC explained. Other investors will then use the digital vault to store their virtual gold, and this allegedly generates a passive return for the initial consumer.
The regulator further added that, depending on the structure, the investments in digital gold vaults may be a ‘financial product’ under the Corporations Act 2001 and entities offering these investments may require an Australian financial services (AFS) license or authorization pursuant to an AFS license.
Also depending on the structure, the investments may constitute a ‘managed investment scheme’ which may require registration under the Corporations Act 2001.
When investing in digital or virtual gold a consumer will commonly purchase tokens or units which are marketed as one-for-one by real gold bullion securely stored in professional vaults.
Some digital gold token offerings are recorded on the blockchain and are held in a digital wallet, which can then be sold on an exchange.
Alternatively, some digital gold offerings can be listed on securities exchanges such as the ASX, as exchange traded products (ETPs).
Some of these entities may also offer debit card products that allow consumers to withdraw cash and make purchases globally. These products may constitute a non-cash payment facility which is a ‘financial product’ under the Corporations Act 2001. Issuers of financial products in Australia must generally hold an AFS licence.
Unlicensed virtual gold entities may be Ponzi schemes
The problem with unlicensed entities offering such investment opportunities is that consumers who invest normally have limited avenues for recourse in the event of a dispute as these entities are based overseas. The terms and conditions may also make it difficult to resolve any dispute.
The emerging trend of unlicensed entities promoting suspicious investment opportunities in digital gold vaults is an issue because it can be difficult to verify whether the digital gold vaults in fact exist because the entities offering the vaults are typically based overseas. ASIC said it is possible that the passive returns generated may actually be funds from new investors, resulting in some schemes potentially being ponzi schemes.
