In an effort to get ahead of the next round of scams, the US Securities and Exchange Commission (SEC) created and published its own version of an initial coin offering (ICO) scam website. It’s a rather innovative way at approaching investor education in the brave new world of cryptocurrency.
SEC Posts ICO Scam Site
“Combining the two most growth-oriented segments of the digital economy,” the mock SEC website reads, “blockchain technology and travel, Howeycoin is the newest and only coin offering that captures the magic of coin trading profits AND the excitement and guaranteed returns of the travel industry. Howeycoins will partner with all segments of the travel industry (air, hotel, car rental, and luxury segments), earning coins you can trade for profit instead of points.”
It really is a novel idea. SEC Chairman Jay Clayton explained, “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. 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.”
And it is also more than ironic how “on it” the SEC has been when it comes to crypto and all things ICO. Enforcement subpoenas are flying all around the United States in search of the next conviction. Ironic, because, of course, so little, comparatively, has been done similarly with regard to mainstream financial scams: The Great Recession is probably a perfect example. Crypto, while often ‘poo-poo’d’ as largely irrelevant and no threat, does appear to occupy more and more time and space in SEC moves.
Nevertheless, SEC Chief Counsel, Owen Donley, detailed how fraudsters “can quickly build an attractive website and load it up with convoluted jargon to lure investors into a phony deal. But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for.” The webpage www.howeycoins.com is an in-house SEC project they were able to construct in relatively little time. Howey is derived from the landmark 1946 U.S. Supreme Court decision, SEC v. W.J. Howey Co. Its decision guides the definition the regulator uses to this day in determining what constitutes a security: “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
Pretty Much Spot On
Some of the better lines are eerily spot on. “We anticipate OVER 1% daily returns, with DOUBLE 2% returns on Tier 1 investors in pre-ICO stage secured purchases,” Howeycoin promises. “The average registered coin return over a two month period in 2017 was an amazing 72%. Based on market conditions, including record-setting prospects in both the digital asset and travel industries, we expect to surpass that BEFORE the Tier 2 offering closes. HODL! We also forecast a minimum growth rate of between 7% to 15% annualized, making Howeycoins attractive for long-term investment. In addition, Howeycoins can serve as a GUARANTEED hedge against inflation and market loss.”
Clicking on the live links brings surfers to a reveal landing page: “If You Responded To An Investment Offer Like This, You Could Have Been Scammed – Howeycoins Are Completely Fake!” the banner blares. “Fortunately, frauds like these often have a number of ‘red flags’ that can help you tell if the so-called ‘investment opportunity’ is really a scam. Our bogus site is a mash-up of a number of different things we’ve seen – any particular fraud may be harder to spot than the red flags here. Here are some of the signs of fraud that are on the Howeycoins site – we hope reviewing these may help you recognize a real fraud in the future!”
In the interest of clarity and fairness, seeing as how the legacy financial world has been around decades and decades longer than crypto and ICOs, it’d be wonderful for the SEC to use some of this new found creativity to mock their own: investment bank come-ons, bail out scams, etc. We won’t be holding our breath.