The SEC has been warning investors about the dangers of initial coin offerings and the proliferation of scam ICOs for some time now.
The regulator is apparently so concerned about educating on the issue, it decided to get creative with its approach -- and promote a bogus ICO of its own.
The SEC today launched a parody website mocking ICOs, complete with a (fake) eight-page whitepaper, (fake) celebrity endorsements, and (fake) team working on the ICO.
The website, HoweyCoins.com, comes with all the features, promises and language that the SEC says investors should flag as big, fat warning signs: the promise of guaranteed returns, celebrity endorsements, a white paper with “a complex yet vague explanation of the investment opportunity,” and a countdown clock that shows time running out on the deal.
When users press the “Buy Coins Now” button, they are instead directed to page at another SEC site -- this one with investor education tools and tips.
The name HoweyCoin is a reference to the Howey test that’s used to determine whether a transaction is an investment contract.
The Howey test stems from a 1946 Supreme Court decision, EC v. W.J. Howey Co., which ruled 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 internet was quick to weigh in on the SEC’s creative tactics.
For this part, Ethereum co-founder Vitalik Buterin gave the SEC a thumbs up.
Earlier this year, SEC chairman Jay Clayton issued a statement updating investors about actions regulators are taking to protect them and the markets on concerns related to cryptocurrencies like bitcoin BTCUSD, -0.54% ICOs and other crypto-related investment products.
“Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws,” said the SEC statement. “The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”
The SEC’s fake ICO website launched the same week as CoinDesk’s Consensus 2018, a massive blockchain conference running in New York.
The SEC had its own presence at the conference. Though he was speaking for himself and not necessarily his agency, SEC Enforcement Division Cyber Unit chief Robert Cohen said that he did not want to hinder innovation around blockchain.
““The SEC has been open about meeting with people from the industry, to come in and meet with the staff, to talk about the ideas you have, the new developments, and have a dialogue about the new technology,” he said during a panel at Consensus.
“The commission encourages ways to raise capital, we don’t regulate the technology -- we regulate the financial industry and the markets.”