In brief: Why was trading suspended?

The U.S. Securities and Exchange Commission (SEC) has temporarily suspended the trading of shares in the OTC-traded CIAO Group, Inc. ("CIAU"), citing concerns over the Nevada technology company's planned 'initial coin offering' or 'ICO' (see "$35 million in 30 seconds: Initial Coin Offerings explained").  

The order issued on 9 August raised...

'...questions regarding the accuracy of assertions by CIAU in press releases to investors concerning, among other things, the activities of the company with respect to business plans in the telecommunications industry and plans for an Initial Coin Offering or ICO.'

Why did the SEC raise concerns?

The CIAO Group had previously announced an ambitious plan to introduce blockchain technology to emerging markets. The business model to achieve this is unclear, but the company appears to propose using a decentralised ledger to trade equities of African technology and telecommunication companies. 

A 15 June press release promised an optimistically bold '$530 billion target market collaboration', and stated:

'African public stocks from multiple African countries traded in a single Cryptocurrency on US trading platforms cleared through DTCC accepted Blockchain transactions could monumentally increase the liquidity of investments in African public companies, and give the average individual US investor new access to the extraordinary growth opportunities only found within Frontier markets.'

Why are regulators interested in ICOs?

The cryptocurrency sphere has witnessed rapid growth in the market capitalisation of tokens over the past year. ICOs are easily accessible to non-institutional investors and almost entirely unregulated at present, leading to concerns about the risk of investor fraud, hacking and market manipulation. This has prompted regulators to urgently review ICOs against existing securities laws.

The CIAU suspension follows the SEC's recent declaration that some 'coins' or 'tokens' may be considered as equity securities under SEC v Howey, and therefore subject to registration and review prior to issue.