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Fraudulent ICOs Are On The Rise. Here’s How To Spot (And Avoid) Them



Initial coin offerings (ICOs) are all the rage these days as cryptocurrencies continue to attract enthusiasts and speculative investors, but for each credible ICO, there may be at least 10 shady ones. The Securities and Exchange Commission has shut down numerous fraudulent ICOs over the last couple of years.

Regulators have also been issuing guidance for investors who are captivated by cryptocurrencies and ICOs, but despite all the information that’s available now, many investors are still being tricked by fraudulent ICOs.

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So how can you tell if an ICO is a legitimate investment or a scam that just aims to steal your money? There are several things to look out for.

What is an ICO?

In order to recognize the danger signs associated with initial coin offerings, we first must establish exactly what they are.

Most investors who are thinking about diving into digital currencies have a vague sense of what ICOs are and that they have something to do with cryptocurrencies, but the details are generally sketchy for many investors.

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ICOs are essentially a form of crowdfunding that involves the use of cryptocurrencies. They’ve become a trendy way for startups to get capital from the general market rather than relying on venture capitalists or involving other intermediaries in the funding process.

Companies that are conducting ICOs sell tokens for cash or established cryptocurrencies, such as bitcoin. When the funding goal for the ICO is net, the project should launch, and then the tokens that were sold become a new cryptocurrency.

Regulators discuss cryptocurrency classification

Unfortunately, scammers have preyed upon uninformed investors who are crypto enthusiasts, and as a result, regulators have had to step in.

The SEC has also been working to classify cryptocurrency and its related products, including ICOs, and one of the debates has been whether or not they are considered securities, making them subject to federal securities laws.

William Hinman, who leads the Corporate Finance division at the SEC, weighed in on that very topic recently in a speech at the Yahoo All Markets Summit: Crypto.

Essentially, he said that what makes a cryptocurrency a security is actually how it is sold rather than what it is.

In other words, initial coin offerings are often considered to be securities because of the nature of the transactions, even though the cryptocurrency itself that comes out of the ICO isn’t necessarily a security—because the nature of the sale of it is different.

Thus, ICOs are generally subject to federal securities laws in the U.S. because investors buy into them and receive a financial interest in the project in return.

However, selling a token on the secondary market later as a one-off transaction without a financial interest in return does not constitute the sale of a security.

How the Howey test can help you spot fraudulent ICOs

The SEC has selected the case SEC v. Howey to use as precedent when it comes to determining whether a crypto product is subject to federal securities laws or not. The case can also help investors cut through all the marketing talk around an ICO as they try to figure if it’s a scam or not.

The Howey case revolved around a hotel owner that was selling interests in an orange grove and recording the transactions as sales of real estate rather than securities.

Most of those who bought interests in the grove had the hotel owner’s other company care for the trees, pick the oranges, and earn them a profit from their interest in the orange grove.

The Supreme Court ended up ruling that the transactions actually constituted sales of securities and not real estate, as two lower courts had ruled previously.

The result of the Howey case was that regulators now often use what’s called the “Howey test,” which is used to determine whether a transaction is a sale of securities or of something else.

An investment contract or security constitute an investment made in “a common enterprise with profits to come solely from the efforts of others.”

If that requirement is fulfilled, then it doesn’t matter whether the common enterprise is a speculative investment or whether a sale of some kind of property with intrinsic value (in the case of ICOs, tokens).

It’s important for ICO investors to understand the Howey test because it can help them determine if the ICO they’re considering is indeed a security.

That’s the first step to protecting yourself from fraudulent ICOs because securities laws should offer some protection, but there’s no better protection than education.

The best protection from fraudulent ICOs: education

The SEC has been working hard to educate investors about the dangers of ICOs and help them make informed decisions when it comes to investing in them.

It continues to be an uphill battle against the many scammers who find eager investors to be easy prey, but those who absolutely have their mind set on investing in initially coin offerings learn how to spot fraudulent ones.

It’s important to approach every ICO with the mindset that the vast majority are scams, and even those that aren’t present a risky investment.

In order to help consumers understand what fraudulent ICOs look like, the SEC launched its own fake ICO called HoweyCoins to demonstrate the red flags consumers should look out for.

Generally, fraudulent ICOs are easily recognizable by the claims that sound too good to be true and promises of “guaranteed returns.”

The reality is that no investment product can offer an investor guaranteed returns because they can’t know with certainty how well their product will go over.

Other key features of fraudulent ICOs include vague language or heavy use of jargon, so much that their website basically says nothing of importance.

Everything about the product remains unclear after you read the site. ICOs generally always include a white paper explaining the crypto network that they plan to build and its potential uses.

If you can’t understand what the tokens you’re investing in will be used for, it’s probably not a good investment.

Questions to weed out fraudulent ICOs

If you’re seriously considering a particular ICO right now, here are some questions you should be asking before handing over your cold, hard cash, based in part on some of the commentary by SEC Chairman Jay Clayton.

1. Who is behind the ICO? Typically, offerings include details on the team that’s building the crypto network.

In some cases, fraudulent ICOs have invented people with excellent qualifications, while in others, they claim qualified people are involved when they actually aren’t.

Even in the case of legitimate ICOs, it’s important for you to know who is selling the tokens so that you can judge their ability to build a successful crypto network.

2. What happens to your money when to buy in? What’s it going to be used for? Is it going to actually build the network, or will it be used to pay back others?

3. Has there been any documentation on what the team that’s running the ICO has done so far? If there isn’t, then their white paper should be perfect because they have no proof of concept yet.

4. What rights will you have when you buy into the ICO?

5. Are there audited financial statements available?

6. Can you sell tokens back to the company to get your money back? Or can you resell the token to someone else? What kinds of limitations are there on getting your money back out?

7. What will be the purpose of the blockchain that’s being created through funding from the ICO? Does it sound like a viable product? Has the blockchain code been released yet?

8. Does the ICO comply with all securities laws? What steps have they taken to ensure that they are complying with the law?

Perhaps the biggest reason so many scammers have been able to rake in millions of dollars via fraudulent ICOs is because cryptocurrency seems like some mysterious form of technology that enthusiasts are convinced will be the goldmine of the future.

It’s just generally not a good idea to invest in something that you don’t understand—unless you know someone who understands it very well and you trust their judgement on it.

Personal Finance

Securing Credit? Importance Of A Personal Financial Statement



If you, as an individual, are a salaried employee but now wish to start a business, then your personal financial statement will be the key to avail credit. You may not be entitled for a loan for business, as the eligibility criteria here underlines history and financial position of an existing business. Since, the business in question would be a start-up; you will have to depend on personal finances for the time being, as a means to fund the venture. It is however recommended to keep personal and business finances separate, in the long-run.

When providing monetary support to a new business, it is important for the fund-provider to understand your financial position, which is well-represented by your personal finance statement.

What Does a Personal Financial Statement Contain?

A personal financial statement reflects your financial health. It is a spreadsheet or a document that gives a breakdown of all assets, liabilities, and fiscal details.

  • This document also contains general information such as your name, address, etc.
  • The assets are detailed on the right side, while the liabilities are listed at the left side of the sheet.
  • Liabilities include credit card balance, a personal loan, mortgage, unpaid tax, and more.
  • Assets include amount of balance in bank accounts, trading accounts, retirement account balances, and similar information.
  • If you are married, then you can apply for a joint personal financial statement, which shows details of all debt incurred and owned assets, of both the involved persons.

What is excluded from a Personal Balance Sheet?

There are a few things, which personal financial statements do not show.

  • Business-related liabilities and assets do not surface in a personal financial statement.
  • This spreadsheet also excludes leases and rentals since the rented or leased assets are not under your ownership.
  • A personal balance sheet will exclude personal property such as household goods, furniture, and more, which cannot be sold off to repay a loan.
  • However, property that has significant value such as antiques, jewelry, etc, can be included, if the asset value of these items are verified for appraisal by a certified agency.

Analysis of Net Worth, Possibility of Availing Credit, and More

A personal financial statement thus basically shows your net worth, which is assets minus liabilities, and it holds a great value, when it comes to seeking loans.

  • Net worth translates as what you will have in cash if you sell off all the self-owned assets to repay debts.
  • If the financial statement shows debts as greater than assets, then your net worth will is a negative.
  • For instance, if the sum of your utility and credit bills, auto loan bills, mortgage bills, etc. sum up to be more than the cash of all the investments and real estate property you own, then your net worth is negative.
  • If the net worth shows as negative, you can file for bankruptcy protection to resolve some of the debts. It may prevent creditors from collecting outstanding debt by posing any financial threat or stress on you.
  • However, certain liabilities cannot be discharged, and these include alimony, taxes, child support, and more.

Thus, personal financial statements have a great impact, when it comes to securing funds to run a new business. The document allows banks/NBFCs to assess your financial situation so that they can take an informed credit decision. If your financial health is not up to the expectation, you may be given an option to provide a personal guarantee, pledge an asset, or co-apply for the loan.

How to Fund Your Start-up Business?

You can either apply for a property loan or a soft loan to arrange capital for the venture, or opt for a small cash loan or a short-term loan, until the business attains enough vintage and financial history, to shift to a business loan suited for only business purposes. Thus, by comparing personal financial statements over a time, you can track your financial health and monitor it closely to improve the same. You should keep a check on this document regularly, especially if you intend to avail credit for business needs.

What is a Business Financial Statement?

A financial statement of your company will list liabilities and assets specific to the business alone. It will depict the net worth of the company, and leave out your personal financial details. The financial statements of an organization, include income statements, profit and loss statements, proof of revenue generation over a specific time period, expenses and debts incurred, cash flow statements (indicated the amount of cash the business has), shareholder equity statements (indicate the performance of the company’s stock).

Thus, a personal and business finance statement are different from each other in lot many ways, though they serve the same purpose, which is to denote the financial position of an entity, be it an individual or a company. An organization’s financial statement comes in use when applying for a traditional business loan, which is the best way to finance your start-up initiative, after it attains at least 3-years vintage.

If you wish to secure a loan for your start-up business, do not hesitate to take support of your personal finance for the moment. And to avail monetary support via this route, you need to keep a regular check on your personal financial statement.

This article originally appeared on ValueWalk. Follow ValueWalk on Twitter, Instagram and Facebook.

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Personal Finance

Video: A “How To” On Being Financially Responsible



Let’s start the new year right by following these steps to being financially responsible and clinching the formula to build wealth.
Some of the philosophies presented in this video come from Robert Kiyosaki, the author of Rich Dad Poor Dad Why do they not teach this in schools?


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Personal Finance

How To Invest Your Way To Your First $1M (In 8 Steps)



While being a millionaire most certainly offers a sense of privilege and extravagance, it also provides comfort.

Despite the idea that many of life’s luxuries can cost you your bank (plus a large chunk of your future earnings), achieving comfortable wealth is possible—if you’ve got a solid investment plan you’ll follow religiously.

Here are eight investment strategies to work your way to your first million dollars.

1. Say No To Fees (Of Any Sort!)

Investing comes packed with hidden and some obvious fees – broker fees, distributor fees, exit and entry fees, maintenance fees, and a string of other service-based fees. If you can manage your own investments and money, you can save hundreds of thousands in fees over the lifetime of your investment.

2.  Don’t Try To Time The Market

This can be one of the biggest blunders one can make—simply because it’s impossible, speculative and you’re gambling with your savings. While there are indicators that show market trends, this does not promise that your investment will most certainly move up or down.

3. Think Long Term And Diversify

If you put all your investments into one asset class, your investment will tank the minute the asset class goes into free fall. How do you beat this? Plan and diversify your investment – it could be debt, treasury bills, equity, real estate, startups, business ideas – anything, as long as you think long-term. This can pay off in the long run.

4. Think Like An Owner

When you buy your stocks or make your investments, think and act like it’s yours – you’ll be doubly careful to make the right checks and invest smart. When you invest in solid, robust companies with this in mind, the returns would also be equally strong. Good companies can pay you high dividends that can up your total income.

5. Invest In Yourself First

Be it education or investing for your retirement, put yourself first and then try to budget for the other frills in life.

6. Borrow If You Can, Don’t Buy

With a growing shared economy, you now have plenty to choose from – co-working spaces, ride-hailing and ride-sharing services, shared rentals and accommodation, and the list goes on. Here’s where you can really cut costs – be it while running your business or as a regular looking to channel the savings elsewhere.

7. Set Goals (And Stick To Them)

Make sure you start saving as early as possible and invest it – even a dollar can compound over time. As time goes, set bigger goals and get excited about them! Once bonuses and income increases come your way, bump up your investments – it can soon touch a quarter of a million.

8. Max Out Early

Your 401K can be one of your biggest retirement funds and maxing out your annual contribution by the end of June can be a great way to boost your retirement savings. How does this help? It gives your money an additional six months to compound.



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