Italy: The Rise Of The Bitcoin, Safe Bet Or Big Risk?

Last Updated: 25 January 2018
Article by Giambrone Law ILP

Most Read Contributor in Italy, September 2018

The banishment of the bogus binary options industry operating out of Israel has seen the exit of thousands of people formerly employed in the fraudulent firms.  The streets are noticeably quieter as many firms have been quick to act in advance of the law which comes into effect in January 2018 and have decamped to places like Cyprus, Georgia and Belgrade. 

However, not all the former fraudulent brokers' staff have left the country as arising out of the binary options ashes is a new challenge, that of affiliate marketing for cryptocurrency brokers.  Simona Weinglass of the Times of Israel reported a couple of weeks ago that job advertisements for the new breed of financial firms are attracting applicants by saying such things as "experience with Forex and binary options field an advantage".  For the purposes of absolute clarity Bitcoin and other ICOs are not inevitably fraudulent, it is just concerning when recruitment of staff for the new cryptocurrency brokerages appears to be aimed at the former staff of the sham binary options brokers and also when one of the notable sham brokers shuts down their operation and without missing a beat simply changes the firm's name to Bit-tech and sets out to deal in cryptocurrencies.

Giambrone's banking and financial fraud department is keeping a close eye on this new sector especially in light of the fact that the sales techniques seem suspiciously familiar, such as the time-limited urgency to complete the deal being presented; the fact that the offers are frequently announced through Twitter or Facebook in industry jargon; the shroud of secrecy which appears to surround the source of the information on which "coin" is rising and will make money and who is behind the demand and who is behind the supply.  Even more alarming is the reported news that Simona Weinglass was able to discover, on the condition of anonymity of the informant, that the same techniques of freezing the account when the innocent investor looks as if they have reached their financial limit and no more money could be gained from them; or  the investors suffer a margin call and their funds are wiped out; or an investor is presented with an opportunity in an initial coin offering (ICO) for a new tech start-up supported by a "white paper" that defines the new business which is in fact a trick to simply extract the investor's money and disappear.

The Israeli regulatory authorities are watching closely as they do not wish to have a repeat of the binary options scandal.  The outgoing Israel Securities Authority's chairman, Shumel Hauser expressed concern about cryptocurrencies saying "I am troubled by the possibility of frauds. When it's not regulated, the investor has no one to turn to. If they live abroad they will have to turn to the Israeli police and that worries me."  He also commented that even non-fraudulent ICOs may be problematic and the decision is yet to be made as to whether the Israel Securities Authority will regulate them or prohibit them. 

Whilst buying into ICOs seems like just another way of investing in a new investment product or business it is in fact quite different in that there is scant legal protection for the investor, unlike providing conventional venture capital for start-up businesses where the investment has a degree of protection in that if the business fails there is still an opportunity to recover some money from the liquidation value.

The whole question of cryptocurrencies and ICOs is still undefined which is partly why such a large question mark hangs over the fledgling industry.  It is difficult to see how such a mysterious secretive industry sector will truly thrive on the world market in the long term without considerably more light shining on the back room activities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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