SEBI to crack down on illicit Bitcoin schemes, says can't allow gullible investors to be taken for ride

The spurt in value of Bitcoin has drawn regulators' attention, in India and abroad, towards the cryptocurrency and its risks. The latest in the list is Securities and Exchange Board of India (SEBI) which is planning to crack down on fraudulent initial coin offerings (ICO) which have come up in absence of regulations.

The market regulator will be protecting the interests of investors who are targeted by cryptocurrency exchanges in absence of regulations, SEBI officials told PTI. "At the same time, SEBI cannot allow gullible investors to be taken for a ride with unlawful promises by these exchanges and those claiming to 'mint' crypto currencies. A number of them are suspected to be indulging in fraudulent activities without actually minting any such virtual currencies that require very complex algorithms," the official said.

The SEBI, however, is not planning on assuming the role of a regulator for trading in Bitcoin or other cryptocurrencies as they are not approved by the Reserve Bank of India or any other agency. There are exchanges offering investment schemes featuring Bitcoins or other established virtual currencies even though there are no rules governing such trade.

Regulators like RBI and SEBI face a conundrum in imposing taxes on cryptocurrencies as that would mean giving them a legal backing. They cannot let cryptocurrencies have free rein either, considering the rising investors' interest and their potential for money laundering, terror funding and such activities.

On the other hand, tax authorities have recently surveyed various cryptocurrency exchanges and are believed to have collected information on lakhs of entities including HNIs who could have 'traded' there.

However, there is a kind of unanimity emerging about subjecting such trading to laws against black money, money laundering and frauds so that the interest of general public remains safeguarded, a senior official said, while adding that any final decision would be taken at highest level and a multi-regulatory panel may be assigned that job.

A gravity-defying Bitcoin rally to over Rs 10 lakh a unit, interspersed with 'stories' of people making crores from thousands, has left the regulators flummoxed.

Modelled on the Initial Public Offers (IPO) for issuance of new shares in the stock market, some entities have begun resorting to ICOs to raise funds from investors, including HNIs and other individuals, who are getting lured into claims of huge returns from Bitcoins and other such variants - apparently getting minted in the digital world but also reaching the real world.

(With PTI inputs)