SEC Launches its Own Fake ICO as Warning to Investors

Avi Rosten
  • The SEC's very own coin named "HoweyCoin" comes complete with a website featuring a team, testimonials and a whitepaper
  • The regulator hopes the fake coin will educate would-be investors about fraudulent ICOs

The SEC (The US Securities and Exchange commission) has today announced an intriguing new initiative designed to educate investors about fraudulent ICOs.

The regulator has launched its own ICO - HoweyCoin - complete with a website showcasing the ICO pre-sale, team, whitepaper - and even tweets touting the potential of the new coin.

The coin aims to revolutionize the travel business, explaining that most travel businesses need “processing, centralized currency and…nickel and dime fees that add up to literally billions.”

Howeycoin differs, however, because:

“HoweyCoins utilize the latest crypto-technology to allow travelers to purchase all segments without these limitations, allowing HoweyCoin users to buy, sell, and trade in a frictionless environment – where they use HoweyCoins to purchase travel OR as a government-backed, freely tradable investment – or both!”

HoweyCoin

The twist is that HoweyCoin is fake - and users who try and invest in the sale are redirected to the SEC’s educational site which reads:

“If You Responded To An Investment Offer Like This, You Could Have Been Scammed – HoweyCoins Are Completely Fake!”

SEC

Presumably named after the legal “Howey test” that the SEC uses to determine whether a financial instrument is a security, the ICO claims that investors can expect to receive 1-2% returns and offers token sale discounts to early investors alongside pictures of exotic locations.

In a press release, the SEC explained that the whitepaper included on the site was designed to mimic other whitepapers, and features:

“a complex yet vague explanation of the investment opportunity, promises of guaranteed returns, and a countdown clock that shows time is quickly running out on the deal of a lifetime."

SEC

While many within the crypto world regularly express their discontent with regulatory bodies and see them as stifling the industry, this latest move from the SEC will no doubt serve as an important warning to would-be investors, and might at least raise a smile from the regulator’s detractors.

Featured Image Credit: "Securities and Exchange Commission" by "Scott S" via Flickr; licensed under "CC BY 2.0"

Bitfinex and Tether Request Courts Remove NYAG's Restrictions

Tether, Ltd., a Hong Kong-based firm that issues the USDT stablecoin, has asked a US court Judge to be more lenient by allowing it to use its cash reserves - while the New York Attorney General (NYAG) conducts its investigation.

At present, the NYAG is carefully examining the business operations of Tether Ltd. and cryptoasset exchange Bitfinex.

NYAG Is Seeking A 90-Day Injunction

As detailed in court papers, submitted on Monday (May 13th, 2019), the legal representatives of both parties have not been able to decide what Tether’s management should be allowed to do with its cash holdings and other company assets.

The NYAG does not want Tether Ltd. or “any affiliated entity” to use the stablecoin issuer’s funds while US prosecutors are conducting their investigation. The NYAG’s office is also pursuing a 90-day injunction against IFinex, Inc.

Court Order Filed To Prevent Bitfinex, Tether From Doing Business In New York

Meanwhile, the attorneys representing IFinex are seeking a 45-day injunction which includes allowing companies or individuals affiliated with Tether and Bitfinex to be able to redeem USDT.

On April 25th, 2019, the NYAG had issued a press release in which it mentioned that Attorney General Letitia James had obtained a court order against IFinex. The court order was filed in order to prevent both IFinex subsidiaries, Tether and Bitfinex, from operating in the state of New York.

The Office of the Attorney General (OAG) had confirmed that an investigation against IFinex regarding the alleged “fraud being carried out by Bitfinex and Tether” was ongoing. Attorney General James had stated (at that time):

Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.

Tether Ltd. Needs To Use Cash Reserves To Maintain Business Operations

Last week, a New York State Supreme Court Judge had ordered both parties to provide additional information related to the order.

On Monday (May 13th, 2019), attorneys representing IFinex submitted a letter to the court which noted that they would abide by certain changes made to the preliminary injunction. However, IFinex’s attorneys clarified that the would not be waiving their previous motion which involves completely vacating NYAG’s Ex Parte order.

Commenting on the matter, IFinex’s attorneys said: 

If [Tether Ltd.] simply held the proceeds in cash, the company would not earn the money required to fund its operations.

A letter from the OAG noted that “bona fide holders of Tether (USDT) should be able to redeem those tokens for cash, as Tether has long represented to the market...Further, the OAG’s proposed modifications do not restrain Tether from placing the reserves in legitimate interest-bearing or similar cash equivalent accounts, as the OAG understands Tether to have previously done.”

Tether’s Employees Must Not Be Paid With Company’s USDT Reserves

IFinex’s management also believes that there’s no legitimate reason why the NYAG should recommend or prevent Tether holders from redeeming USDT. Notably, IFinex’s legal team claims that NYAG’s statements and recommendations are a “gross overreach” as the OAG is not a regulatory authority.

According to statements issued by the NYAG, Tether’s employees should be paid for work they’ve done. However, the company must not pay salaries by using USDT reserves, the NYAG said.