SEC Launches Parody ICO Site, Crypto Economist Enjoys Laugh
The U.S. Securities and Exchange Commission launched a site on Wednesday to educate potential participants on the prevalence of scam ICOs. HoweyCoin has arrived, folks, promising to capture “the magic of coin trading profits AND the excitement and guaranteed returns of the travel industry.” Attempting to participate in the sale will redirect the user to the SEC’s proper site, where they will surely feel some measure of shame.
The Crypto Economist, of course, is not endorsing a contribution to HoweyCoin, because it is not real (I would not be endorsing it here, or anywhere, even if it were real). Anyone monitoring the ICO space should be tipped off by a deluge of red flags, including but not limited to:
· Promise of returns (complete with specific figures)
· Discussion of SEC-compliant crypto exchanges (??)
· One barely coherent and horrendously written whitepaper
· A claim that the travel industry is exciting
· Vague, absurd, and irrelevant celebrity endorsements
Some of these points could certainly apply to above-board ICOs, which seems to be among the points the SEC wants to make. ICO scams are among the most common type of cryptocurrency crime, a claim supported recently by regulators in Hong Kong, and the SEC wants potential participants to understand the buzzwords and features fraudulent sales may employ to ensnare marks.
The prevalence of ICO scams does raise some interesting points about personal accountability and centralized systems. Crypto, by its nature, lacks central oversight; oversight which could theoretically protect individuals from such swindles. Crypto advocates might argue this is a feature, not a bug: it is up to the individual to recognize such plots on their own, and not the responsibility of a third party to tell anyone how they should or should not spend money. The SEC surely recognizes that a lack of centralization presents an opportunity for bad actors and wants people to have the tools to regulate themselves.
But let’s get back to the fake offer itself, because there’s a lot to mine here.
The Whitepaper: The whitepaper is a treasure trove of marketing jargon (e.g. synergy, confluence), industry jargon (e.g. frictionless, democratization), promises of profit, and the same few ideas expressed repeatedly. A colleague of mine took a brief look and remarked how much giggling there must have been in the SEC office while this was being written, and I must agree. Just look at how this thing opens:
The Internet is a global network connecting individuals and entities around the world. In the 30 years since widespread use, the Internet has broken down barriers and distances in terms of information and commerce. In terms of information, where you were once confined to your local newspaper, your local broadcast news and your local library, you can now find information from every corner of the world.
This would have been a great sentiment in 1993 and reminds me of the infamous CNN video on the advent of the internet from that year. In 2018, nobody reading that paragraph on a phone or computer needs that introduction. Many ICO whitepapers I come across are unnecessarily wordy while simultaneously saying nothing. This is a good thing to be on the lookout for while measuring an offeror’s ability to assemble useful materials to represent its product. I would have more faith in a company eager to discuss its technology, which HoweyCoin never really does.
In addition, as with other cryptocurrencies, the increasing adoption and usage of HoweyCoins is guaranteed to lead to higher valuations.
Yikes. They even bolded it. Mentioning anything along the lines of profit or “higher valuations” is a major no-no for US ICOs, as it would virtually guarantee the SEC viewing the token as a security via the eponymous Howey Test. The whitepaper ends with an assurance that “your HoweyCoin’s ICO is a can’t miss investment opportunity.”
While the whitepaper does include two colorful graphics, neither helps describe the product. The focus is entirely on the potential riches involved while being utterly devoid of meaningful content. A solid whitepaper should read more like a research article, with a detailed solution to a compelling problem, and less like a marketing pitch.
Meet the Team: I am not sure where the SEC found the folks used in the team section, but the portraits and titles themselves are convincing enough. What’s missing is any sort of biography. One of the first things I ever remember learning in my college entrepreneurship course is that VCs tend to value a great team above a great product idea. A solid ICO understands this and wants to scream its team’s accomplishments from the rooftops. A team that lacks noteworthy accomplishments, such as experience bringing real products to market, is a serious red flag.
Celebrity Promoters: This was my favorite part. Celebrities promoting ICOs is funny for a variety of reasons. Jennifer Aniston and Prince Charles recently appeared in fabricated client profiles, resulting in the Texas State Security Board serving a cease-and-desist order to one scheme, and Ryan Gosling was once purported to be experienced graphic designer Kevin Belanger. But HoweyCoin’s celebrity endorsements are arguably even more brazen. They feature a stereotypical Millennial millionaire on his phone exiting a luxury car near a private plane, a girl playing drums, and a sweaty guy in a boxing gym. We are not sure how these individuals have achieved their celebrity, and they are not even named outside of Twitter handles. The best one, of course, being @realdrummerstar, something a real drummer would likely not call themselves.
The reception to the parody site on Crypto Twitter was mixed; with some folks applauding the SEC’s initiative and creativity and others wondering why our tax dollars were being used here. Both viewpoints are valid, but I think the cynical views are missing that this likely took the SEC a scant few hours to drum up. This is, again, one of the points the SEC was trying to make: some of these ICO scams are so haphazardly done that blatant red flags should be relatively easy to identify, provided you know where to look.
ICOs have traditionally been the realm of the tech-savvy investor. While surely not everyone who has ever invested in an ICO has read and/or understood the whitepaper, the level of technological understanding for the majority of these investors usually surpasses that of Main Street. This site’s existence could be part of a signal that Main Street money is increasingly flocking into ICOs. This should serve as a reminder to everyone, regardless of industry savvy, to be on the lookout for bad actors.
More details on red flags in this sale: https://www.investor.gov/howeycoins
Additional resource on recognizing ICO scams: https://blockgeeks.com/how-not-to-be-scammed-by-a-initial-coin-offering/
Disclosure: This post, as with all Crypto Economist branded posts, is a personal opinion written for informational purposes only. This post does not constitute investment advice, legal advice, tax advice, or any other sort of advice. Likewise, the information herein should not be interpreted as any endorsement, recommendation, or sponsorship of any particular company, token, or security.