Published: Thu, May 17, 2018
Markets | By Otis Pena

The government created a fake cryptocurrency to help you avoid s

The government created a fake cryptocurrency to help you avoid s

In the ongoing process of regulating cryptocurrency, the SEC has been recommending that exchanges use this test as a guide for whether a coin falls under the existing securities regulations or not.

ICOs are usually offered for a fixed time, and in return for investors handing over standard cryptocurrencies including Bitcoin (BTC) and Ethereum (ETH), they are given a form of branded cryptocurrency token. However, the SEC is adamant that just because an ICO drops a big celebrity name, that doesn't make the product legitimate.

The Securities and Exchange Commission (SEC) Office of Investor Education and Advocacy has created a bogus website to highlight the scam riddled initial coin offering (ICO) industry. The SEC website shows an intersection between the travel and blockchain industry with several fake promises of outsized investment returns and benefits to the early backers. The HoweyCoin can even be "spent at any participating airline or hotel".

The page then continues to outline the red-flags the SEC planted on the HoweyCoins' site to demonstrate the false advertising practices that many scam projects employ to rope in investors. The HoweyCoins team claimed the ICO offers as low as 1% daily returns and protects against inflation by combining "the magic of coin trading profits and the excitement and guaranteed returns of the travel industry".

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".

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In a white paper (.PDF), downloadable through the website, more indicators of a potential scam are present. However, anyone who should stumble across it and decide to click "Buy Coins Now" after being impressed by the testimonies of its fake Twitter stars @McWhortle, @realdrummerstar and @boxingchamp1934 will be led instead to investor education tools and tips from the SEC and other financial regulators.

This website is to give gullible investors an idea as to how genuine-looking ICO schemes are running a malicious campaign at the back. Most of these, like pump-and-dumps and guaranteed returns, are already familiar markers in the cryptocurrency.

The name, HoweyCoin, is a nod 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 exclusively from the efforts of the promoter or a third party". The four-part test, established in 1946, ascertains whether or not a transaction is an investment contract or security. In reality, the SEC does not regulate any of the platforms most ICOs select.

If ICOs come under securities law, ICO traders must be vetted and offering companies and advisors need to have a strong, thorough knowledge of how to conduct securities events.

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