OpEd By Cindy Taylor/Publisher
I may have just gotten myself placed on the Do Not Fly list (or the “let’s keep an eye on that crazy lady” list), because I took on the SEC after receiving this press release yesterday. Truth be told, I’m glad the SEC is doing its job and flagging potential ICO scams with this interesting promotion they developed below, but it also got me pretty riled up.
Why? Because NOT ALL ICOs ARE SCAMS. Here’s an idea. Since the SEC is in a turf battle with the CFTC over who will legislate this new, growing and NOT GOING AWAY investment category (because tokens can exhibit characteristics that technically both regulatory agencies oversee), why don’t the two organizations form a joint task force with the intent to establish a new and SMALL independent regulatory body EXCLUSIVELY for cryptocurrencies and initial coin offerings (thank you to our contributor Bill Taylor for that suggestion). No more than 20 people to start, and it could be a self-governing body like the NFA, which does a brilliant job of self-governing the futures markets. Great idea.
Now….again….some of these ICOs are PURELY BOGUS and I’m glad that the SEC is trying to educate consumers on the potential danger of investing in these. In fact, Charter Financial’s CEO just forwarded us a piece by the WSJ that looked into 1450 ICOs and flagged nearly 20% as potentially fraudulent, and that is a VERY big number – one in five.
Even so, we would have like to see the SEC get their act together on how to appropriately oversee these in the US before doing a scare campaign like this. That has not yet happened. As a result, more and more ICOs are going offshore to countries that are interested in hosting them compliantly according to legalized standards with regulatory oversight – Gibraltar, France, South Korea, Canada…….the list keeps growing. But not here in the US….at least, not yet. We need intelligent regulatory oversight on token offerings and we need it yesterday.
Washington D.C., May 16, 2018 — If you’ve ever been tempted to buy into a hot investment opportunity linked with luxury travel, the Securities and Exchange Commission has a deal for you.
Check out the SEC’s Office of Investor Education and Advocacy’s mock initial coin offering (ICO) website that touts an all too good to be true investment opportunity. But please don’t expect the SEC to fly you anywhere exotic—because the offer isn’t real.
The SEC set up a website, HoweyCoins.com, that mimics a bogus coin offering to educate investors about what to look for before they invest in a scam. Anyone who clicks on “Buy Coins Now” will be led instead to investor education tools and tips from the SEC and other financial regulators. (NOTE: IF THE SITE DOES NOT OPEN, MAKE SURE YOU COPY AND PASTE IT INTO YOUR BROWSER)
“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 website features several of the enticements that are common to fraudulent offerings, including a white paper with a complex yet vague explanation of the investment opportunity, promises of guaranteed returns, and a countdown clock that shows time is quickly running out on the deal of a lifetime.
“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals,” said Owen Donley, Chief Counsel of the SEC’s Office of Investor Education and Advocacy, who doubles as “Josh Hinze” on the HoweyCoins website. “But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for.”
The website’s name, HoweyCoins, is a bit of an Easter egg—a tongue-in-cheek reference to the Howey test that’s used to determine whether a transaction is an investment contract.
In a landmark 1946 U.S. Supreme Court decision, SEC v. W.J. Howey Co., the Court 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 SEC was able to build the HoweyCoins website in-house in very little time, which demonstrates just how easy it is for someone to create a scam opportunity.
Remember, a free and simple way to protect your money is to research investments and the people who sell them. You can do all that and more on the SEC’s investor education website, Investor.gov.
Before you invest, Investor.gov.
For example, SEC Chairman Jay Clayton’s Statement on Cryptocurrencies and Initial Coin Offerings includes questions investors and other market participants should consider asking. https://www.sec.gov/