The Securities and Exchange Commission has taken an unprecedented step in creating a fake website which purports to raise funds for a hypothetical Initial Coin Offering venture. Apparently, it is designed to educate the ignorant masses regarding ICO scams; however, the design is so absurdly lacking in factual content it would be difficult to conceive of a person gullible enough to invest in something so blatantly spurious. While it is true that some ICOs are indeed pure scams, the vast majority of these do have valid project plans and the main consideration is not outright theft of investment funds but the failure of the business venture due to the common reasons that many business ventures fail.
Clearly, in my opinion, the SEC is under pressure to stem the flow of capital into the blockchain space and away from Wall Street’s normal low interest ‘scams’ where they take the public’s capital, pay investors a minuscule interest rate and lend it out to 3rd parties at a much higher interest or just outright take the public’s money through speculative markets such as futures, stocks, options, Forex, or other derivatives. Remember 90% of all traders fail and lose most or all of their accounts. Most of the market gains accrue to the benefit of large institutions. Now the SEC is getting ready to crack down on the blockchain space which completely displaces Wall Street and their financial products that are explicitly designed to permanently withdraw investment funds from the public, otherwise how could they stay in business?
The new fake website uses lofty promises, pseudo-technical language, pre-ICO token discounts, testimonials, lists the design team photos, and even provides a link to a non-existent whitepaper. This is generally how an ICO functions; however, the entire project isn’t described anywhere except in general terms. There is no time-line for implementation/design goals, no use of funds pie-chart, no exchange rate, no legal documents provided such as “Terms of Sale”, no in-depth description of the proposed token or a legal opinion, and frankly if an investor is dumb enough to fall for a site so poorly designed then they deserve to be scammed. The public needs to have at least a modicum of common sense: if a person is not an expert in a field, why would they just throw money into something they have no understanding of? Yes it has happened, but in the vast majority of those cases the fraud was overt and discoverable after conducting due diligence, the problem is that investors were simply too lazy or cheap to do so.
Astute and savvy investors generally retain investment or financial advisors to evaluate and recommend investments. They will discuss a potential investment with their CPA and/or legal counsel and carefully review the offering documentation and potential risks. Further, the public needs to understand that the vast majority of such ventures are highly speculative, in the early stages of development and no guarantee that the platform will even be build can be made. Therefore, a full and deep assessment of the design team, its goals, viability of the platform and its need within the proposed space, competition, and legal documentation all need to be thoroughly vetted. While most of the ICOs reviewed by this Firm have not been viable business ventures worthy of investment, this does not change the fact that most teams and business plans were legitimate, not scams.
An investor or his/her professional agent should contact the team or their representative and discuss any concerns; their identities and experience need to be ascertained. If they are unable or unwilling to answer questions from investors, an investor should pass on such a project. Please don’t hesitate to reach out to Belenky Law Firm PLLC if you would like to have an ICO reviewed for compliance with securities laws, completeness of legal documentation, and to have an opinion rendered as to such venture’s potential viability.