E-Coins were developed by the Quid Pro Quo Association, which had been issuing them for more than a year.
Working with two other companies, Digital Trading AG and Marcelco Group AG, Quid Pro Quo provided access to an online platform on which E-Coins could be traded and transferred.
At least CHF4m (£3.07m, $4.16m, €3.48m) worth of E-Coins was sold.
The three firms also operated virtual accounts for users in both legal tender and E-Coins.
“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”
“This activity is similar to the deposit-taking business of a bank and is illegal unless the company in question holds the relevant financial market licence,” the Swiss Financial Market Supervisory Authority (Finma) said in a statement.
Not a cryptocurrency
Unlike real cryptocurrencies, which are stored on distributed networks and use blockchain technology, E-Coins were completely under the providers’ control and stored locally on its servers, Finma said.
“The providers had suggested that E-Coins would be 80% backed by tangible assets, but the actual percentage was significantly lower.
“Moreover, substantial tranches of E-Coins were issued without sufficient asset backing, leading to a progressive dilution of the E-Coin system to the detriment of investors.”
Corporate liquidation
In failing to get appropriate authorisation, Finma said the three firms had “seriously breached supervisory law”.
As is common in serious cases of unauthorised activity, the Swiss regulator has liquidated the association and the two companies.
Bankruptcy liquidation proceedings have also been launched against them.
Assets worth around CHF2m have been seized but the final amount recovered will not be known until bankruptcy liquidation proceedings have concluded.
Warning list
Finma has evidence of attempts by unauthorised parties to persuade former E-Coin users to invest in two new, presumably fake, cryptocurrencies.
The following companies have been added to Finma’s warning list due to suspicious activity in the same field:
- Suisse Finance GmbH in Liquidation
- Euro Solution GmbH
- Animax United LP
Sentiment turning
The Swiss clampdown comes as global sentiment towards virtual currencies is on the turn.
China ordered that Bitcoin exchanges across the country be shut down, reports the BBC. All exchanges in Beijing and Shanghai must submit plans for winding down their operations by 20 September.
The move follows the Chinese central bank’s decision to ban initial coin offerings (ICO) in early September.
An unregulated means of crowdfunding, ICOs sell a percentage of the new cryptocurrency to backers in exchange for money or established cryptocurrencies, such as Bitcoin.
A website set up by the central bank warned that cryptocurrencies are “increasingly used as a tool in criminal activities, such as money laundering, drug trafficking, smuggling and illegal fundraising”.
JP Morgan’s chief executive Jamie Dimon recently labelled Bitcoin “a fraud” that will eventually “blow up”.
“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed,” he warned a banking conference organised by Barclays on 12 September.
