Wednesday’s Word: Initial Coin Offerings (ICOs)

By Edward Greenblat, Fall 2018 Investor Advocacy Clinic Student Attorney

Nobody likes writing out an IOU. But, if investors aren’t careful with their ICOs, they could end up writing a bunch of IOUs.

ICOs or Initial Coin Offerings have become a popular way for people and businesses to raise money or start investing. But what are ICOs? An ICO is a form of cryptocurrency, which is a “digital representation of value that can be digitally traded and functions as a medium of exchange, unit of account, or store of value.” In layman’s terms, an ICO is electronic money that can be traded online.

The Security Exchange Commission (“SEC”) is so worried about investors getting scammed by sellers of ICOs that it set up its own fake website. The website looks like a site to buy ICOs, and more specifically, tries to mimic fraudulent sites the SEC has found. Howeycoins.com, the SEC’s fake ICO website, markets a product that “combines blockchain technology and travel.” In addition, the site advertises a bonus for buying quickly, and does so in tiered format, so that investors who buy more are part of a “Platinum” club. Also, the site includes pictures of the howeycoins.com team, but no biographical information. To seal the deal, the site has “testimonials” from “celebrities” to endorse the product.

A savvy investor might immediately recognize the red flags on howeycoins.com. I would like to say that I’m part of that group, but I don’t think I would have immediately recognized the inherent problems with this site. ICOs have become the hip investment, which means they have also become the new fad for fraudulent activity. As with all investments, if an ICO seems too good to be true, it probably is.