How to Spot a Fake ICO (Initial Coin Offering)

Initial coin offerings (ICOs) may no longer be at the peak they experienced in 2018, when they seemed to be all over the place. However, they still exist. Legitimate ICOs give crypto investors a chance to get in on the ground floor of a new cryptocurrency. Fake ICOs, on the other hand, are often either rug pulls or are created for coins that never existed in the first place.

Those are the types of ICOs you need to be able to spot as an investor, which is why we’re going to show you how to spot a fake ICO here.

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Tip 1 – Check the SEC Registration

In the early “wild west” days of crypto ICOs, most were classified as crowdfunded investments, meaning the Securities and Exchange Commission (SEC) didn’t monitor them. That’s changed. The SEC eventually applied its “Howey Test” to ICOs, determining that they met every criterion to be registered. An ICO delivers an investment contract. It’s a common enterprise to which is attached an expectation of profit, with that profit being delivered by a third-party, just like any other investment vehicle.

The result?

ICOs are now registered in the SEC’s systems. At least, that’s the case for valid ICOs. A fake ICO will avoid that registration like the plague, allowing you to spot it by virtue of it not being in the SEC’s registry. Legitimate ICOs will have either a Form 1-A, Offering Statement of a Form D, Notice of Exempt Offering of Securities available for you to view via the SEC’s EDGAR system.

Tip 2 – Read the ICO’s Whitepaper

Firstly, if an ICO doesn’t come with a whitepaper – or it does and the whitepaper offers barely any details – you have an obvious scam on your hands. Avoid that coin.

Scammers that actually make the effort to deliver a solid whitepaper still make mistakes you can spot. Look for the absence of key information, such as the financial models supporting the coin and the SWOT analysis the ICO should have undergone before being made available to the public. You should also see a detailed timeline for the coin in the whitepaper. If that information isn’t provided, the ICO is either a scam or it’s being run by somebody who hasn’t done the appropriate legwork – both are ICOs you want to avoid.

Tip 3 – Research the Development Team

A general rule to follow is that if the development team isn’t recognizable or researchable, you may have a fake ICO on your hands. Research is your friend here. Sophisticated scammers may invent people and entire biographies delivered via their websites and whitepapers. Never trust that information alone. For every name that you find attached to the project, do your research to see what (if any) other projects the developer has worked on. You’re looking for past projects, research papers, and any other independent hints that the developer has worked on crypto projects in the past.

An absence of that information tells you that you’re likely looking at an ICO scam. That goes for the names of the team behind the coin not appearing in the coin’s whitepaper or their names not revealing any useful information when you research them online.

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