The Securities and Futures Commission (SFC) today warned the public to beware of two suspicious investment products, namely the “Floki Staking Program” and the “TokenFi Staking Program”. Both products involve cryptocurrency staking services and claim to offer high annualized return targets ranging from 30% to over 100%.
The two products were not authorised by the SFC for sale to the Hong Kong public (Notes 1 and 2), and their managers were unable to demonstrate to the SFC’s satisfaction how the products would achieve their high annualised return targets.
The SFC noted that the Hong Kong public can access the two products and their related information through the Internet. Therefore, the SFC posted the two products and their related information on the Suspicious Investment Products Warning Webpage on January 2024, 1.
The SFC would like to warn investors to beware of "pledge" arrangements related to virtual assets. As these arrangements may be non-authorized collective investment schemes and carry high risks (Note 3), their investors may receive very limited or no protection under the Securities and Futures Ordinance and may lose their entire investment. Investors should also be cautious of investment products that claim their returns are "too good to be true" and remain vigilant when making investment decisions.
The SFC will take appropriate action in relation to any violations.
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memorandum:
On the surface, each of these two products possesses the characteristics of a collective investment scheme as defined in section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance. Under section 103 of the Securities and Futures Ordinance, any person who issues in Hong Kong or elsewhere any advertisement, invitation or document which is or contains an invitation to the Hong Kong public to acquire an interest in or participate in a collective investment scheme commits an offence unless the SFC has authorised the issue or an exemption applies. In general, collective investment schemes must be sold by intermediaries licensed or registered by the SFC. Unauthorised collective investment schemes can usually only be sold to professional investors.
Under section 114 of the SFO, it is an offence for a person to carry on or hold himself out as carrying on a business in a regulated activity (which would include promoting the interests of collective investment schemes) without the required licence. Under section 115 of the SFO, it is also an offence for a person to actively market in Hong Kong or from outside Hong Kong to the Hong Kong public any services provided by that person which, if provided in Hong Kong, would constitute a regulated activity.
In its "Statement on Virtual Asset Arrangements Claiming to Provide Returns to Investors" issued on December 2022, 12, the SFC reminded investors of the risks associated with virtual asset arrangements (including "pledge" services), and reminded persons participating in the relevant arrangements that the arrangements may constitute collective investment schemes.