In an interesting effort to head off cryptocurrency scams, the Securities and Exchange Commission created its own fake initial coin offering website and launched it yesterday. The coin, dubbed the Howey Coin has only one purpose: to warn investors against scammers and fraudulent cryptocurrencies. The name is a tongue-in-cheek reference to the landmark 1946 US Supreme Court decision, SEC vs WJ Howey Co, that held 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 solely from the efforts of the promoter or a third party.”
The details of HoweyCoins are put out in a report on its website, and the “coin” is being backed by a well-known and established institution known as … the Securities and Exchange Commission.
That’s correct. On Wednesday, the federal commission surprised many by putting out an unusual press release that prompted investors to “Act Now!,” and publishing a mock website for HoweyCoins.
According to the HoweyCoin website, most travel businesses “require processing, centralized currency, and most importantly, nickel and dime fees that add up to literally billions.”
HoweyCoin is different, the fake site says, because:
“HoweyCoins utilize the latest crypto-technology to allow travelers to purchase all segments without these limitations, allowing HoweyCoin users to buy, sell, and trade in a frictionless environment – where they use HoweyCoins to purchase travel OR as a government-backed, freely tradable investment – or both!”
“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.”
The SEC made sure their website features several of the well-known incentives that are often pertinent to shady and fraudulent offerings, ranging from a superficial white paper with a complex but vague explanation of the coin and investment opportunity, promise of guaranteed returns, and a unavoidable scarcity element: countdown clock that shows time is quickly running out “on the deal of a lifetime”.
