Swiss watchdog shuts down fake e-coin in cryptocurrency crackdown

Switzerland's financial watchdog has closeddownwhat it said was the provider of a fakecryptocurrencyand is investigating around a dozen other possible fraud cases, in thelatestclamp-downon the risks involving virtual money.

The move by the FINMA watchdog comes on the heels of Chinese authorities' ordering Beijing-basedcryptocurrencyexchanges to stop trading and immediately notify users of their closure.

Virtual currencies such as Bitcoin, which are issued and usually controlled by their developers and not backed by a central bank, are hailed by their supporters as a fast and efficient way of managing money.

But regulators and traditional banks are increasingly concerned about the risks of fraud in the burgeoning onlinecryptocurrencyunderworld.

JPMorgan Chief Executive Jamie Dimon last week said Bitcoin, the original and still the biggest cryptocurrency, "is a fraud" and will eventually "blow up".

The QUID PRO QUO Associationshutdownby FINMA had provided so-called E-Coins for more than a year and had amassed funds of at least 4 millionSwissfrancs ($4.2 million) from several hundred users, FINMA said in a statement on Tuesday.

"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," FINMA, Switzerland's Financial Market Supervisory Authority, said.

E-Coin was not like "real cryptocurrencies", FINMA said, because it was not stored on distributed networks using blockchain technology but was instead kept locally on QUID PRO QUO's servers.

Reuters was not immediately able to reach Zurich-based QUID PRO QUO for comment.

FINMA said it had three other companies on its warning list due to suspicious activity in cryptocurrencies and was conducting 11 investigations into other possible fake virtual currencies.

TheSwissfinance industry has been looking for new avenues of growth following a weakening of its bank secrecy rules during a global crackdownon tax evasion.

The smallSwisscanton of Zug, famed for low taxes that have drawn multinational companies, has been trying to turn itself into a hub for virtual currency firms.

But the QUID PRO QUO case is an example of the pitfalls of investing in the booming but still-murkycryptocurrencyworld.

Of the money users had invested, FINMA said it had so far seized and blocked assets worth around 2 million francs.

Initial coin offerings, or ICOs, have fuelled a rapid ascent in the value of all cryptocurrencies, from about $17 billion at the start of the year to a record high close to $180 billion at the beginning of September.

An ICO is a practice of creating and selling digital currencies or tokens to investors to finance start-up projects.