The Security and Exchange Commission (SEC), the American financial watchdog institution, has launched a fake Initial Coin Offering campaign to show investors how a fraud ICO should look like and how they can stay away from them. The fictional ICO website, HoweyCoins (a pun on how-we-coins) can be visited here.
The SEC is the government institution in charge of financial laws. It has many purposes, but the main function has to do with enforcing federal securities laws, proposing securities rules, and regulating the securities industry inside US borders. The SEC has been vigilant with Initial Coin Offerings, a type of money collecting endeavor that is poorly regulated, since last December due to a high number of complaints regarding some of them being scams.
The site looks like a regular ICO campaign site, even featuring a countdown to the launch of the ICO, but reading a little more, some strange statements can be found.
“WE ANTICIPATE OVER 1% DAILY RETURNS, WITH DOUBLE 2% RETURNS ON TIER 1 INVESTORS”
“OUR PAST TWO PUMPS HAVE DOUBLED VALUE FOR THE PERIOD IMMEDIATELY AFTER THE PUMP FOR RETURNS OF OVER 225%”
Offering an incredible level of revenue, this starts to look more and more as a scam. They also offer a whitepaper that details the business model of Howeycoins with pure mumbo-jumbo, without explaining the real revenue model. Furthermore, when you try to buy tokens, the link takes you to a SEC page that warns about how anyone could be scammed by answering to a site like HoweyCoins.
The SEC site details five “red flags” that an investor must be aware of before investing on an ICO:
- The claim of guaranteed returns: every investment has a risk, and nothing is “guaranteed”. There are risks involved and potential pitfalls.
- Celebrity endorsements: it does not matter if Steven Seagal or even Floyd Mayweather are advertising it, you must do your own research about the ICO.
- Claims of “Sec-compliance”: the SEC does not authorize ICOs because regulation has not been passed to determine if tokens (the currency offered by ICOs) are security class assets. So, any ICO that claim this is misleading.
- Investing with credit cards: the purchase of cryptocurrencies with credit cards has been forbidden by most banks operators.
- Pump and dump scams: ICOs that offer immediate growth at incredible rates are most likely raising artificially the price of its token to sell them at high prices, then letting the prices fall and making investors lose their money.
The SEC has been carefully watching ICO action, starting with just light pieces of advice regarding the topic of investing in cryptocurrencies. But last February they subpoenaed every ICO to collect information about how they operated. Furthermore, SEC employees have suggested that ICOs should be regulated but just talking in a personal way.