Xunlei stocks fall after security warning

Shares of technology company Xunlei Ltd plunged 27.4 percent on Monday after the National Internet Finance Association of China said its token-based virtual currency, LinkToken, is a potentially high-risk model.

The association warned on Friday that the initial miner offering model (IMO), a new way to issue cryptocurrency, could have potential risks. It said the model, through which the LinkToken has been offered, "is essentially an activity of fundraising, and it is a form of disguised initial coin offering (ICO)".

"Consumers and investors should recognize the essence of this model, and to be more aware of investment risks," said a notice on the association's website.

The association also encouraged reporting on IMO or outbound ICO trading services to domestic individuals. "The illegal activities can be reported to the police," the notice said.

Xunlei said in a written statement that they hold a positive attitude toward the notice from the regulator, and are willing to accept the guidance and supervision. Meanwhile, the company had clarified it wouldn't carry out any ICO-related activities before the country banned such activities.

"We didn't charge users any kind of fees during the distribution process of LinkToken," said the company, which has repeatedly emphasized it doesn't support transactions with Link-Token and doesn't provide yuan exchange services.

China's central bank, the People's Bank of China, issued a notice with six other government departments in September 2017 calling on organizations and individuals to stop ICOs immediately, as the activities are suspected to be linked to illegal fundraising and security issuance activities.

The new IMO model involves companies selling mining hardware to generate a particular cryptocurrency or token that can be rewarded to contributors. It became popular in October last year, after the country's financial regulators banned ICOs, as they believe they could spark financial risks.

"Xunlei's LinkToken does not constitute an ICO and it is different from bitcoin as users usually obtain virtual currencies through purchases. But LinkToken must be obtained as a reward through the sharing of the user's idle bandwidth, storage space, computing power or other resources," said Zhao Zhanling, a legal researcher at China University of Political Science and Law who specializes in intellectual property cases.