In offer documents Sharma said he was seeking to raise $220m to develop a cyptocurrency that would underpin his apparently successful e-commerce site that he claimed had 5 million users and 10,000 new for-sale listings daily.
A Herald investigation found the offer document made claims that appeared to inflate traffic and economic activity on Sell My Good by up to four orders of magnitude. Instead of 10,000 new listings a day, the site only displayed 17 in the past month.
Sharma stood by his statements, but was unable to explain the discepencies identified by the Herald and did not supply documentation his claims as promised.
The FMA said over the weekend it had concerns over the accuracy of statements made in offer documents for SMG E-Cash and these had not been addressed. The regulator advised New Zealand investors against handing to Sharma.
In a statement today, a spokesman for the regulator said it "expects investors to be provided with accurate and understandable information to assist then to make decisions relating to financial products ... When the FMA sees this has not happened we will take action to protect investors."
Sell My Good has decided to withdraw its ICO due to the serious hacking of our website over the weekend and concerns...
Posted by Sell My Good on Monday, November 27, 2017
The Sell My Good statement said all money raised in the ICO - Sharma last week told the Herald he'd hauled in $2m from investors, mostly friends and family - would be refunded by December 4.
The withdrawal represents a backdown for Sharma, who last week criticised the FMA and threatened to reroute transactions through a South Pacific island nation if the regulator moved against his venture.
"They treated us as a joke. It's really bad, they think 'oh, he's a 19-year-old kid who knows nothing," Sharma last week said of the FMA.
Cyptocurrency is a new product - the most popular of which is Bitcoin - and regulators internationally are grappling with how the ventures fit into existing regulations - in New Zealand's case the Financial Markets Conduct Act.
A spokesperson for the FMA said it had recently released guidance for prospective ICOs urging offerers to talk early to establish whether their product was covered by the Act.
To date no ICO has been granted an exemption, and while Sell My Good had applied for one it pressed ahead with launching before hearing back.
The FMA issued a general caution to investors about the sector, and a spokesperson described ICOs as a "speculative, high-risk investment".
"Investors should also be aware of the common warning signs of a scam, as using crypto currencies can make you a target for scammers or businesses selling high risk investments. As a general rule people should be wary of investing in something if they don't understand how it works," the spokesperson said.
Alex Sims, associate professor in commercial law at the University of Auckland, said the ICO space was presently fluid with a wide variety of offerings in the market.
"If you're misrepresenting things of course that's a concern. And also, the worry is there are legitimate ICOs wanting to launch, but these things give it a really bad name. That's one of the reasons why China has banned them, because there were a lot of scams."
Sims said the FMA needed to allow ICOs to be set up in New Zealand, otherwise the business would go offshore - losing the country's capital and offering local investors no recourse to offshore ventures that went sour.
Sharma signalled the withdrawal of SMG E-Cash was not the end of his adventures in cryptocurrency, flagging the possibility of a new ICO next year.
"We have learnt a tremendous amount from the process and from the feedback we have received along the way," the Facebook statement said.
"One of those learnings will be to engage with the FMA and take legal advice as early as possible in the process."
