Joining the seemingly endless parade of blockchain-enabled initial coin offerings (ICOs) that have hit the market, the Securities and Exchange Commission (SEC) is promoting a new offering of digital tokens, called Howeycoins, for sale to the public. The Howeycoins platform is touted as one of the largest cryptocurrency platforms, enabling investors to use digital tokens to buy services or products in the travel industry, such as airplane tickets, hotel rooms and rental cars, or simply to trade for profit. In addition, Howeycoins are said to be officially registered with the SEC and will trade on an SEC-compliant exchange.
The offering is being conducted using the format of most ICOs. Investors are drawn to a website, in this case www.howeycoins.com, to participate in the offering. The ICO is structured as an investment discount “ladder,” giving early investors significant discounts to the offering price of the tokens, and there is a time counter showing the days, hours, minutes and seconds before the ICO is closed. Purchases can be made with credit cards. As are typical of ICOs, there is a link to a “white paper” that describes the value and utility proposition associated with Howeycoin. The website also identifies the management team and includes celebrity testimonials. The Howeycoins offering is, like too many ICOs, completely fake. In perhaps an unprecedented manner, the SEC has concocted a false investment to demonstrate a new brand of securities fraud. Clicking on a purchase link on the Howeycoins website sends a prospective investor to an SEC alert page that warns of scams and fraudsters in ICOs and cryptocurrencies. The SEC page contains a listing of the red flags associated with fraudulent ICOs, which includes guarantees of unreasonably high returns, false legal compliance claims, easy purchases using credit card, inadequate disclosure, no financial information, no management biographies and cryptic celebrity endorsements from non-celebrities.
Howeycoins, named after the well-known Howey test for determining whether an instrument is a security, is yet another approach the SEC has taken to contain ICOs in the United States. The phony Howeycoins ICO follows a litany of public speeches by SEC officials, investor alerts and enforcement actions targeting fraud in the ICO market. Some of the SEC’s prior efforts targeting ICOs can be found at https://blogs.duanemorris.com/capitalmarkets/2018/05/04/cryptocurrencies-and-digital-tokens-as-securities/.