The Securities and Exchange Commission has set up a mock Initial Coin Offering (ICO) website to help educate potential investors about the risks inherent in such opportunities.

The American regulator’s Office of Investor Education and Advocacy’s site - HoweyCoins.com - touts a too good to be true investment opportunity, mimicking a bogus coin offering. Anyone who clicks on ‘Buy Coins Now’ will be led to investor education tools and tips.

“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,” said SEC chairman Jay Clayton. “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.”

Clayton continued that Distributed Ledger Technology (DLT) can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws.

The website features several of the enticements that are common to fraudulent offerings, including a white paper with 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.

“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals,” said Owen Donley, chief counsel of the SEC’s Office of Investor Education and Advocacy, who doubles as ‘Josh Hinze’ on the HoweyCoins website.

The website’s name is a reference to the Howey test that’s used to determine whether a transaction is an investment contract. The landmark 1946 US Supreme Court decision, SEC vs W.J. Howey Co., 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 solely from the efforts of the promoter or a third party”.

The move follows a speech from SEC commissioner Hester M. Peirce earlier this month, where she sounded a note of caution around cryptocurrencies and the regulator’s role in policing the market.

“Innovation is always a challenge for regulators,” she admitted. “We are used to the way things have been done, our rules have grown up in response to past technologies, figuring out whether and how they apply to new ideas is difficult – but technology’s promise is too great for us to bury our heads in the sand.”

Peirce used the beach analogy throughout her speech, especially when she stopped short of committing the SEC to the FinTech sandbox approach pioneered by the UK’s Financial Conduct Authority and adopted by other regulators around the world.

“Talk of sandboxes is welcome, and my fellow regulators’ sandboxes have already yielded great dividends,” she stated, nothing that she would rather talk about beaches. “On a beach, the lifeguard watches over what is happening, but she is not sitting with sandcastle builders monitoring their every design decision.”

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