Major intervention by the prosecutors, has Steaker evolved into a financial scam?

Taiwanese financial platform Steaker is suspected of illegally raising billions of dollars through fraud. The CEO Wilson Huang and 4 other executives were summoned by the prosecutors yesterday. After the court hearing, the judge officially ruled to detain and prohibit visitation for CEO Wilson Huang. Currently, the authorities are investigating allegations of violations of the Banking Act, the Criminal Code, and fraud.

Prior Background

The Taiwanese financial platform Steaker is a company regulated by the U.S. FinCEN, holding a Money Service Business (MSB) license, but it is not registered in Taiwan. Since 2020, the company has introduced various investment plans on its platform, claiming to provide annual returns ranging from 5.8% to 88%, attracting many investors to pour in funds, with the total amount reaching hundreds of millions of New Taiwan Dollars.

Following the bankruptcy of FTX, Steaker claimed that some user investment schemes incurred losses of 10.67 million U.S. dollars equivalent tokens due to FTX being the platform used. Although the company has been acquired by National Standard Capital Asia (NSCA) and CEO Wilson Huang has continued to serve customers, the new investors did not provide compensation to Steaker users. Instead, they sought compensation from FTX in accordance with relevant regulations, leaving investors uncertain about the return of their funds.

Intervention by Authorities

During the Finance Committee's inquiry on December 5th, Legislator Guo Guo-wen asked Huang Tian-mu, the chairman of the Financial Supervisory Commission, about Taiwan's regulatory strategy for asset management platforms like Steaker. Chairman Huang pledged for the first time that, in addition to anti-money laundering measures, they are currently conducting inter-agency research and will expand supervision of domestic cryptocurrency platforms.

On December 21st, law enforcement agencies conducted searches and summoned Wilson Huang and 5 others for allegedly violating the Banking Act by operating financial information services without permission from the competent authority. The next day, they applied to the court for the detention and isolation of Wilson Huang for violating the Banking Act, while the other 4 individuals were released on bail ranging from 250,000 to 500,000 New Taiwan Dollars.

Relevant Provisions of the Banking Act

Article 29 of the Banking Act

Unless otherwise provided by law, non-banking entities are not allowed to engage in deposit-taking, trust fund management, public property management, or domestic and foreign exchange transactions.
Violators of the preceding provisions will be cracked down by the competent authority or the competent authority of the purpose business in conjunction with judicial police and referred for prosecution; if it is a legal entity, the person in charge shall bear joint and several liability for the relevant debts.

Article 29-1 of the Banking Act

By borrowing, receiving investments, attracting shareholders, or other means, collecting funds or absorbing capital from a majority or unspecified number of people and providing or paying dividends, interest, dividends, or other returns not commensurate with the principal, shall be deemed as taking deposits.

Article 125 of the Banking Act

Those who violate the provisions of Article 29, paragraph 1, shall be sentenced to imprisonment for more than three years but less than ten years and fined from NT$10 million to NT$200 million. Those who gain profits or benefits of more than NT$100 million through crimes shall be sentenced to imprisonment for more than seven years and fined from NT$25 million to NT$500 million.

Are Stablecoins Regulated by the Banking Act?

Steaker accepts stablecoins USDC and USDT on its platform, which are not traditional fiat currencies. Could this be considered as accepting deposits?

Referring to a recent case, according to Supreme Court Judgment No. 3277 issued in 2021, the court stated:

It is not necessary to deliver cash coins directly in physical form; indirect fund flows involving virtual game tokens, virtual currencies, etc., are sufficient for fraudulent fundraising. The registered coins EP, cash coins CP, and transaction coins TP issued by the perpetrator are computer virtual points rather than domestic or foreign legal tender, regardless of whether they have been exchanged for physical domestic or foreign legal tender, all possess economic value and are considered a transformation of domestic or foreign legal tender.

Based on the above, virtual currencies and stablecoins are likely to be treated similarly and deemed as a transformation of legal tender. Since Steaker is not a bank, it is naturally prohibited from accepting deposits. Moreover, Steaker's platform promotes fixed returns higher than traditional banks, seemingly indicating fraudulent fundraising. If a judge confirms this, the responsible party may face imprisonment for more than seven years, and the person in charge will be jointly liable for the relevant debts.