SEC shows what an ICO scam looks like
The US regulator illustrates the dangers of cryptocurrency scams with a fake ICO website.
With its debut of the HoweyCoins pre-initial coin offering sale on Wednesday, the US Securities and Exchange Commission is touting the first American government-issued cryptocurrency – except HoweyCoins isn’t actually real.
The fake ICO website highlights what the SEC sees as classic red flags of an investment scam, including a countdown clock and time-sensitive deals that promote a sense of urgency, lofty expectations and promises of guaranteed returns, and a “complex yet vague” white paper that espouses a compelling story without concrete facts.
“The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our Main Street investors,” SEC Chairman Jay Clayton said. “We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws. I encourage investors to do their diligence and ask questions.”
The name HoweyCoins is a play on the longstanding Howey test that’s used to determine whether a transaction is an investment contract – the same test that’s at the center of speculation about whether or not major cryptocurrency Ethereum should be classified by the SEC as a security.
The mock ICO was created by the SEC’s Office of Investor Education and Advocacy in “very little time” – underscoring how easy it can be for scammers to operate.
In addition to showcasing visual cues of an illegal ICO promotion, the SEC has also released a more detailed bulletin on the topic.
To learn more about the growing ICO trend, including additional red flags for ICO scams and junk ICOs, check out our guide to how initial coin offerings work.
Disclosure: At the time of writing, the author holds XRP, CND, ANT, DRGN, EOS, NEO, ADA, AION, GTO, SALT, QTUM, WAX, BTC and ETH.