SEC launch spoof ICO to warn naive ICO investors

Kieran Smith , 23 May 2018 - IcoScamSec

SEC launches HoweyCoins — an ICO investment satire intended to educate gullible investors about ICO scams

Anyone interested in a completely SEC-compliant ICO should check out HoweyCoins—a hot new opportunity to make a guaranteed 1% daily return by capitalizing on the use of blockchain in the travel industry.

If that sounds too good to be true, that’s because it is. The HoweyCoins mock initial coin offering (ICO) website has been dreamt up by the Security and Exchange Commission in a bid to stop naive investors getting bamboozled.

Mimicking a bogus ICO, the website includes all the distinguishing features of a fraudulent offering, including the promise of guaranteed returns, a vague yet seductive white paper, and a dramatic countdown to fuel the FOMO in potential investors.

However, should anyone be gullible enough to click ‘buy’, then they will be led to an educational site demeaning them for being so easily duped by a format that has been so widely used to extract funds from investor’s pockets.

In a press release, Owen Donley, chief counsel of the SEC’s Office of Investor Education and Advocacy, commented on the site concept:

“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals,” said Donley, “But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for.”

These red flags are identified and exposed by the educational site, which also includes information from the Commodity Futures Trading Commission, the Financial Industry Regulatory Authority, and the Consumer Financial Protection Bureau. The branding derives from the Howey test, used by the SEC to determine whether or not an investment is a security.

HoweyCoin’s ICO is a can’t miss investment opportunity.

As an educational satire, HoweyCoins is perhaps too accurate for its own good. With clear grammar and 100% original content, the whitepaper is actually superior to some real offerings, but also makes many of the questionable assertions of disreputable ICOs.

Should the ICO be successful, HoweyCoins claim, then “the nondisclosure agreements terminate and we will be able to disclose the largest network of travel partners"--a sentence that should ring alarm bells for potential investors. That, and the explicit expectation of “a bidding war that will increase HoweyCoins valuations by several fold" once the ICO is over.

Backed by an array of alluring celebrities, their vision almost seems credible, that is until you see the valued endorsement of “McWhortle”, a fictional SEC celebrity who also featured in a parody of online investment scams back in 2002.

A new approach to protecting consumers?

The ICO craze has attracted its fair share of critics, but satire has proven particularly effective at exposing corruption. Perhaps the SEC were inspired by the “Useless Ethereum Token”, whose website openly declares: “You're literally giving your money to someone on the internet and getting completely useless tokens in return”  or the “Initial Corn Offering”, which apparently deserves your investment because “corn” kind of sounds like “coin.” YetAnotherICO.com is brilliant example of how easy it is to generate a genuine looking ICO website.

YetAnotherICOYetAnotherICO.com — setting the standard for fake ICO generators

The danger of course, is that the parodies are taken seriously. The Useless Ethereum Token still raised more than $70,000, and Dogecoin, a cryptocurrency that started as a joke, was valued in the billions at its highest point.

‘HoweyCoins’ however, isn’t aiming for profit, and the website instead suggests a new approach from the SEC to protecting consumers: not through regulation necessarily, but through education—empowering people with the knowledge to fend for themselves.

The website suggests a recognition of the benefits of the fundraising mechanism, but also the requirement for due diligence: “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,”said SEC Chairman Jay Clayton. “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.” 

While attorney Rick Levin from Polsinelli LLP's fintech division appreciates the SEC's effort, he suggests there are more practical things the agency could do to clarify the sector. "While I commend the SEC for providing this guidance," he says, "there is a pronounced need for it to provide more formal guidance to the FinTech industry in the form of regulations on the initial sales and secondary trading of digital assets."