US regulator launches Howey Coin to teach us about ICO scams
In a play on their Howey Test for testing whether an investment is a security, the Securities and Exchange Commission has launched a dummy coin to educate traders.
The esoteric nature of cryptocurrencies and the public's massive lack of understanding make it ripe ground for shysters and charlatans. Earlier this year, we saw the fake ICO for Prodeum, which disappeared, wiping its website and leaving just the word "penis" behind. And Ernst and Young have said 10% of all ICO funds end up being stolen.
It's little wonder regulators are looking to play the role of sheriff in the cryptocurrency wild west.
But rather than rolling in with guns blazing, the United States' Securities and Exchange Commission has taken a different approach. They have created a fake website complete with a fancy looking white paper and even some fake Twitter accounts that look like famous people are endorsing the fake coin.
All of those tactics are part of any ICO but the SEC's efforts prove how easy it is to create a completely fake, but real-looking, ICO that can potentially fleece people out of millions of dollars.
It doesn't take long to see through the scam – I'm pretty sure there isn't a boxer in the world going by the generic handle @boxingchamp1934 since most will want to make sure there's a superlative attached to their name. But the discount scheme, the ability to use a credit card to buy in and the nice design make it all look very serious.
However, when you hit one of the "Buy coins" buttons liberally distributed on the site, you're directed to an advice page explaining that it's a scam and providing some advice on how to identify fakes in the future.
This is the real value of the Howey Coins site. It provides some solid advice on how to spot the red flags that can help you question whether an ICO is legitimate or a fake.
Now that cryptocurrencies are here to stay, the SEC and other regulators need to realign their thinking. Rather than simply tilting at windmills, efforts like this show regulators are preparing to help people through the world of cryptocurrencies so they can make smarter choices when it comes to ICOs and where they put their money.
Disclosure: At the time of writing, the author holds BTC, EOS, ETH, XLM, ETN, LTC, ADA and XRP.
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Picture: Securities and Exchange Commission