The United States Securities and Exchange Commission (SEC) is vehemently opposed to a common crowdfunding practice in the cryptocurrency industry called the initial coin offering (ICO). An ICO is similar to an initial public offering where a company or corporation raises investment capital by offering its stock to the public for the first time. Only in an ICO, a digital currency or token is distributed instead of a stock, and the token can have a variety of uses that blur the line of what defines a traditional security.

Still, the SEC believes that the way ICOs are funded has them falling under security laws, and the companies interested in launching an initial coin offering need to comply with SEC private placement rules and investor protection guidelines. Those that fail to comply, may be subject to cease and desist letters in the future, as has happened with a number of US-based ICOs.

To further warn potential investors of the dangers initial coin offerings, the SEC has published a website on the increasingly popular capital raising method, providing what the SEC calls the “three ‘Rs’ of ICOs: Risks Rewards and Responsibilities.”

The website reads:

“Companies and individuals are increasingly considering initial coin offerings (ICOs) as a way to raise capital or participate in investment opportunities. While these digital assets and the technology behind them may present a new and efficient means for carrying out financial transactions, they also bring increased risk of fraud and manipulation because the markets for these assets are less regulated than traditional capital markets.’

The list of potential risks, rewards, and responsibilities is directed both at investors and potential ICO issuers and cover off on how initial coin offerings could be securities, may need to be registered with the SEC, or may pose “substantial risks.” To avoid those risks, the SEC warns investors to do their own research, ask questions, to understand the product, and to take extreme caution if and when an investment sounds “too good to be true.”

The SEC also takes the opportunity to warn would-be ICO issuers, asking them to “use caution before promoting offers and selling coins.”

A month ago, the SEC launched a fake ICO website called HoweyCoins.com to provide a working example of what a fraudulent ICO may look like. Investors who clicked on any of the fake site’s ‘buy now’ buttons, were redirected to educational materials on what red flags to look out for when considering investing in an ICO.

[Image Credit: WikiMedia Commons]

In a bid to raise awareness of potential investment scams in the cryptocurrency space, the U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy have launched a fake website posing as a luxury travel firm kicking off the pre-sale portion of their initial coin offering (ICO).

The website HoweyCoins.com, is a tongue-in-cheek play on everything your run-of-the-mill bogus ICO offers. From ‘too-good-to-be-true’ promises, to flashy images of champagne bottles and palm trees, to convoluted and often-plagiarized whitepapers, to pre-sale bonus countdown clocks, the SEC’s spoof site has got all of the common enticements found on fraudulent sites.

In a press release titled “The SEC Has an Opportunity you Wont Want to Miss: Act Now!” SEC Chairman Jay Clayton explained the motivation behind HoweyCoins:

“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,” with Clayton adding:

“We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws. I encourage investors to do their diligence and ask questions.”

Anyone who clicks on the “Buy Coins Now!” Button will be redirected to educational materials from the SEC warning users of potentials scams and what red flags to look out for. Some of the red flags outlined include celebrity endorsements, claims of guaranteed returns, claims of SEC-compliance, and more.

Even the site name HoweyCoins is an Easter egg referencing the “Howey test” – a test created by the Supreme Court stemming from the SEC v. W.J. Howey Co. case in 1946, aimed at determining whether a financial transaction qualifies as an “investment contract.”

Who knew the SEC was this funny? Still, fraudulent investments are no laughing matter, and the SEC has done a solid job at raising awareness of the potential pitfalls of cryptocurrency investing, all while serving as an entertaining break from the daily grind.

For educational information on how investors can protect themselves, visit investor.gov or use the Buy Coins Now button on HoweyCoins.com.

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The company behind wildly-popular encrypted messaging app Telegram has scrapped plans to open its initial coin offering (ICO) to the public, says an anonymous source close to the matter.

According to the Wall Street Journal, Telegram — which is developing a blockchain ecosystem called the Telegram Open Network (TON) — has determined that it does not want to enter the murky regulatory waters currently governing the ICO industry.

That’s not to say the company is hard up for cash.

As BlockExplorer reported, the chat platform already reported to the Securities and Exchange Commission (SEC) that it had raised $1.7 billion from fewer than 200 investors during two private ICO presales, which the firm conducted during the first three months of the year.

Those funds will purportedly be used to develop TON, which the company has privately described as a “third-generation blockchain” capable of processing millions of transactions per second. However, skeptics have wondered aloud whether that money will instead be used to fund Telegram’s general operations, as the app does not currently generate revenue.

One anonymous source cited in the report connected Telegram’s decision to shelve the public ICO to the SEC’s increasing oversight of the burgeoning ICO space, which has seen startups collectively raise billions of dollars over the past calendar year — and fraudsters make off with a noticeable percentage of it.

Since the presale excluded retail investors, Telegram was able to claim an exemption from traditional securities registration requirements.

However, opening the offering to the public would raise a number of thorny regulatory issues, and many observers believe the SEC is preparing to bring down the hammer on noncompliant ICO operators.

If a company as well-known as Telegram conducted a conventional ICO, it would present the SEC with a high-profile target if it desired to make an example intended to frighten other market participants into compliance.

Featured Image from Pixabay

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The U.S. Securities and Exchange Commission (SEC) does not plan to ban initial coin offerings (ICOs), a top official said on Monday.

SEC Commissioner Robert Jackson said during an interview with CNBC that the agency is instead committed to bringing ICOs into compliance with the country’s current securities framework, which dates back to the 1930s.

“Investors are having a hard time telling the difference between investments and fraud,” Jackson said. “Down the road, I think we will be thinking about ways to make those investments work consistent with our securities laws.”

Jackson chided ICO industry participants for repeatedly flouting federal securities laws in their token sales, arguing that they have effectively acted as though it is an unregulated market.

This, he said, has hurt investors, many of whom have fallen victim to fraud schemes involving cryptocurrency.

“If you want to know what our markets would look like with no securities regulation, what it would look like if the SEC didn’t do its job? The answer is the ICO market,” Jackson said. “Right now we are focused on protecting investors who are getting hurt in this market.”

To date, most ICO operators have described their tokens as “utility tokens,” which they allege are exempt from securities regulations. However, the SEC has said that while utility tokens may exist there are few ICOs that can find safe harbor under this definition.

Last week, SEC Chairman Jay Clayton said that every ICO token he has observed is a security, though he clarified that bitcoin and other “pure” mediums of exchange are exempt from that classification.

Meanwhile, former Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler said that he would classify ethereum and Ripple’s XRP token as securities since they were both initially distributed through sales conducted by centralized entities — and XRP still is.

Featured Image from SEC/Flickr

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Infamous political consulting group Cambridge Analytica had planned to hold an initial coin offering (ICO) before it became tangled up in Facebook’s data sharing scandal.

According to Reuters, the British data analytics firm had quietly approached an ICO advisory service with preliminary questions about holding a token sale, through which it hoped to gain $30 million.

The report states that it is unclear whether the company plans to follow through with the ICO, but a spokesperson did confirm that Cambridge Analytica — in a humorous twist — is developing a blockchain-based platform to help individuals “reclaim their data from corporate entities.”

“Prior to the Facebook controversy, we were developing a suite of technologies to help individuals reclaim their personal data from corporate entities and to have full transparency and control over how their personal data are used,” a Cambridge Analytica spokesman told the publication. “We were exploring multiple options for people to manage and monetise their personal data, including blockchain technology.”

That’s more than a little ironic. The data analytics firm, which was hired by US President Donald Trump’s 2016 election campaign, reportedly gained access to the personal data of as many as 87 million Facebook users as a result of improper data sharing practices on the part of the social media giant.

A New York Times report divers further into the nature of Cambridge Analytica’s foray into the cryptocurrency space, where it used its “psychographic profiles” of consumers to conduct targeted advertising campaigns for ICOs and other blockchain companies.

Investors who attended one Cambridge Analytica pitch deck said that the company also floated paying Mexican voters cryptocurrencies in exchange for filling out surveys, data from which would then be sold to Mexican political candidates and used to create ad campaigns.

Notably, Brittany Kaiser, who led Cambridge Analytica’s ICO-focused work, left the company in February and has been extremely critical of it in the two months since her exit.

Featured Image from Pixabay