Over the past few months, cryptocurrency related scams are on a rise and this has been something which has worried government organizations across the world. The US SEC - Securities and Exchanges Commission has been an organization which has expressed its opinion about these scams from time to time. The SEC is now taking to some unique ways to promote user awareness - going as far as creating a fake ICO website, HoweyCoin!
The SEC has made use of this website to show to the investors about how a fake ICO website usually looks like. It has a visual appeal similar to most other bogus websites which claim to be ICOs but are actually schemes to disappear with the investor money. The SEC particularly points out that these websites promise high returns, endorsements from celebrities - as well as claim that they are in compliance with all SEC laws.
The HoweyCoin.com website even comes with a fake whitepaper and has been made in a very convincing manner. Interestingly, the name HoweyCoin comes from the Howey Test which the SEC uses to determine if an investment is a security. If proven to be a security, the SEC has greater control over the jurisdiction and the guidelines it needs to follow.
Under the Howey Test, a transaction is an investment contract if:
It is an investment of money
There is an expectation of profits from the investment
The investment of money is in a common enterprise
Any profit comes from the efforts of a promoter or third party
When you open the Howey Coin website - there is a big box on the front which urges you to ‘Buy Coins’. However, when you click on the button - you are redirected to the website of the SEC, which lets you know that this is a bogus website created by them to raise awareness around how ICO scam websites look like. The website reads:
“We created the bogus HoweyCoins.com site as an educational tool to alert investors to possible fraud involving digital assets like crypto-currencies and coin offerings.”
The SEC Highlights the ‘Red Flags’
At the website where you are redirected to when you click on ‘Buy Coins’, the SEC talks about some ‘red flags’ which should alert the investors about the website being a potential scam. These red flags, as pointed out by the SEC are:
Claims of High and Guaranteed Returns: The SEC states that any investment you make is bound to carry some amount of risk. The higher the investment, the higher is the risk. Any website guaranteeing returns is likely to be a scam because returns can never really be guaranteed as financial investments are always subjected to market risks.
Celebrity Endorsements: While not all celebrity endorsements are a sign of a scam - many fraudulent ICOs are heavily reliant on celebrity endorsements. In the past we have seen names such as Floyd Mayweather and Steven Seagal associated with scam ICOs and fraudulent cryptocurrency platforms. The SEC points out that “It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment.”
Investing with Credit Cards: In what the SEC has pointed out as another major red flag, it says that most licensed investment firms do not allow users to invest using Credit Cards. This is usually something only scammy websites or fake ICOs would allow as they want to provide investors with as many ways as possible to invest - making it easier to scam them.
‘Pumps and Dumps’: Any website talking about how they will ‘pump’ the price of a currency is likely to be a scam. The SEC states that websites often claim that they will pump the price of a currency to get more users to buy it. Once enough users ‘pump’ the currency, the scamsters ‘dump’ it by selling off their holdings - profiting on the pump and dropping the price of the currency while they exit the markets. Investors need to be aware of these false claims.