SEC Launches its Own Fake ICO as Warning to Investors

Cornelia Mascio
Mag 17, 2018

The U.S. Securities and Exchange Commission wants to ensure investors can identify fraudulent initial coin offerings - even if it has to launch its own to do so. But please don't expect the SEC to fly you anywhere exotic-because the offer isn't real. Anyone who clicks on "Buy Coins Now" will be led instead to investor education tools and tips from the SEC and other financial regulators.

"We've recently seen fraudsters pretending to be involved in blockchain technology, initial coin offerings and crypto-currencies - when really they are simply operating scams created to take investors' hard-earned money", says the site. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws.

In a press release, the SEC also noted that the site includes "a white paper with a complex yet vague explanation of the investment opportunity, promises of guaranteed returns, and a countdown clock that shows time is quickly running out on the deal of a lifetime". "But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for".

The regulator announced Wednesday it has launched a mock ICO called HoweyCoin, presumably named after the Howey Test, which "touts an all too good to be true investment opportunity". Stemming from a 1946 Supreme Court decision, EC v. W.J. Howey Co., the ruling has been that a transaction is an investment contract, or security, if "a person invests his money in a common enterprise and is led to expect profits exclusively from the efforts of the promoter or a third party".

SEC said it spent "very little time" working up the site, which it said demonstrated how easily scam token sales could crop up.

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