On 13 February ASIC issued a stop order prohibiting Bitcoin Group Limited (a Bitcoin miner) from publishing statements concerning its intention to make an initial public offering of its shares on the ASX until it has formally lodged a prospectus.
Bitcoin Group Limited (Bitcoin Group) had posted statements on the social media app Wechat which sought expressions of interest from the public to subscribe for shares in the company if the proposed ASX listing proceeded. ASIC noted that these statements were made before Bitcoin Group was registered as a company in Australia and before any prospectus was lodged, in breach of pre-prospectus advertising restrictions. Wechat is a mobile communications app that was developed in China and, in its media release, ASIC stated that the company was targeting investors from the Chinese community.
Bitcoin is a type of decentralised virtual currency that has emerged in the last decade as an internet-based medium of exchange. Bitcoin ‘mining’ refers to the security process of confirming the validity and authenticity of transactions listed on the Bitcoin network (the “Blockchain”) whenever Bitcoins are exchanged. This involves Bitcoin miners applying complicated mathematical formulas (using cryptography) to the Blockchain in order to verify each transaction. This requires significant investment by competing Bitcoin miners in advanced computer software and computing power, which is rewarded through the issue of new Bitcoin to successful miners. In 2014, Digital CC Limited became the first Bitcoin mining company listed on the ASX.
ASIC took the step of issuing a specific media release about the stop order given the publicity around Bitcoin Group’s intention to list and the fact that, as no prospectus has yet been lodged, a media release was an effective way for ASIC to highlight its concerns to the market and the action it took. In the release, ASIC reminded the market that it expects companies to be mindful of their obligations regarding pre-lodgment advertising and that ASIC will take action it deems necessary to ensure that investment decisions by the public are made in a fully informed environment.
Restrictions on advertising
ASIC monitors this type of publicity because the Corporations Act 2001 (Cth) imposes significant restrictions on advertising or publicising an offer of securities requiring a disclosure document before and after the document is lodged. Subject to limited exceptions, a person must not advertise such an offer or intended offer, or publish a statement that directly or indirectly refers to the offer or intended offer or is reasonably likely to induce people to apply for the securities.
ASIC’s regulatory guidance states that ASIC will take action if the publication of an advertisement would significantly reduce investor protection and be likely to:
- result in the market being drip-fed with selective information which should properly be contained in the disclosure document which includes all information that is material to the offer;
- discourage adequate analysis of the disclosure document by individual investors and the market generally; or
- result in investment decisions being made on the basis of an advertising campaign and other publicity rather than on the basis of the formal disclosure document.
With the rise of social media and powerful online communication tools, there are more ways for a company to efficiently reach and communicate with stakeholders and prospective investors than ever before. The fact that, in these circumstances, the offending statements were published through a mobile communications app is an important reminder that prospective issuers must be cognisant of the advertising and publicity restrictions that apply to all forms of communications and that care must be taken to ensure that all members of an IPO deal team are familiar with, and comply with, these restrictions.