When legitimate, ICOs are created to give startups and - generally - cryptocurrency-related projects a cash injection and a chance to get off the ground without appealing to angel investors or traditional financial institutions.
However, the fun ends once prospective investors click the "Buy Coins Now" link, which instead directs them to an SEC investor education website that provides information on how to identify and avoid common ICO scams.
The SEC uses a bait and switch to guide users along to educate themselves about the pitfalls of ICO investing.
"Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals", said Donley. "We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with numerous classic warning signs of fraud". "We embrace new technologies, but we also want investors to see what fraud looks like" said Clayton, quoted in the SEC announcement.
The fake site, HoweyCoins.com, is supposed to represent a fraud ICO which even comes with a fake whitepaper and guaranteed investment returns.
The HoweyCoins site hits on several tell-tale signs of a scam. These include celebrity endorsements, promises of high returns, and ironically, promises that the ICO is SEC-compliant. It features a countdown clock showing how much time is left to get in on the discounts and outlines different levels of investment against images of tropical islands and foaming champagne.
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While those attributes don't necessarily mean the offering is bogus, it's wise to be aware - and skeptical.
That's right. On Wednesday, the federal regulator raised eyebrows by putting out an unusual press release that urged investors to "Act Now!", and publishing a mock website for HoweyCoins.
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 US 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 exclusively from the efforts of the promoter or a third party".
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.
SEC has launched a spoof Initial Coin Offering (ICO) website in a bid to educate and warn investors of the dangers posed by the ICO Wild West.