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The SEC Munchee Order and Chairman’s Statement

On December 11, 2017, the U.S Securities and Exchange Commission (“SEC”) issued a cease and desist order (“Order”) against Munchee, Inc.’s (“Munchee”) $15 million Initial Coin Offering (“ICO”). The SEC determined that the tokens were investment contracts, and thus securities, primarily because a purchaser of the tokens would have had a reasonable expectation of obtaining a future profit based upon Munchee’s efforts, including Munchee revising its app and creating an “ecosystem” using the proceeds from the sale of the tokens. On the second day of sales of MUN tokens, the company was contacted by SEC staff.  Munchee determined within hours to shut down its offering, did not deliver any tokens to purchasers, and returned to purchasers the proceeds that it had received. For a detailed description of the Order, please see our previous blog post here. The SEC chairman, Jay Clayton, concurrently issued a public statement (“Statement”) expressing his general views on the cryptocurrency and ICO markets. It should be noted that the Order does not have the weight of a federal court decision. Munchee consented to the Order without admitting or denying any of the findings therein. Furthermore, the Statement is personal to the chairman, and “does not reflect the views of any other Commissioner or the Commission.” That said, the Order and the Statement provide us with the SEC’s assessment and chairman’s perspective as to whether ICOs constitute the sale of securities, and how to conduct an ICO without running afoul of securities laws.
Continue Reading When Does Software Become Securities?

On July 25, 2017, the U.S. Securities and Exchange Commission (“SEC”) issued a report (“Report”) detailing its investigation into whether the DAO (an unincorporated “decentralized autonomous organization”), Slock.it UG (“Slock.it”), Slock.it’s co-founders, and intermediaries violated the federal securities laws. The SEC determined that the tokens issued by the DAO are securities under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”), and advised those who would use a distributed ledger or blockchain-enabled means for capital raising to take appropriate steps to comply with the U.S. federal securities laws. However, the SEC decided not to pursue an enforcement action at this time.
Continue Reading The SEC and ICOs: Putting the SEC’s Determination that DAO Tokens are Securities in Context

Corporate lawyers and software developers have been watching eagerly as the State of Delaware takes steps to enable Delaware corporations to issue shares of their stock as digital tokens. Instead of recording shares on paper ledgers, corporations will record ownership using “Blockchains”: ledgers that are secured by cryptographic keys that can be distributed around the world without fear of tampering.
Continue Reading Taking Stock in Blockchains

As published on Medium.

My fellow moderator, Stephanie Zeppa from Sheppard Mullin, sits with, from left, AdRoll’s Aaron Bell, Floodgate’s Arjun Chopra, Cisco’s David Ulevitch and Luxe’s Curtis Lee.
My fellow moderator, Stephanie Zeppa from Sheppard Mullin, sits with, from left, AdRoll’s Aaron Bell, Floodgate’s Arjun Chopra, Cisco’s David Ulevitch and Luxe’s Curtis Lee.

Sheppard Mullin, along with Silicon Valley Bank, recently co-hosted a panel of seasoned entrepreneurs at Runway on “Building and Motivating a Kick-Ass Team.”

The combined experience of these panelists was incredible, and we heard some great advice about how to build and manage teams, which sometimes requires ignoring conventional thinking. The following are five of those suggestions.Continue Reading Building a Kick-Ass Team: 5 Lessons

There has been a lot of talk recently about a phenomenon called crowdfunding, a new type of fundraising that relies on social media and the Internet to raise small amounts of capital from large numbers of individuals. Despite the talk, crowdfunding remains impermissible under the securities laws absent a costly registration with the SEC and with state securities administrators. Last year, two people created a website, a Facebook page, and a Twitter account to solicit funds to be used to purchase Pabst Brewing Company. They received over $200 million in pledges from more than five million individuals, but were later subjected to cease-and-desist proceedings initiated by the SEC. Crowdfunding would seem to be a viable approach to small company capital formation, if only it were legal.
Continue Reading The Entrepreneur Access to Capital Act and What It Could Mean for Startups

One of the most common agreements entered into by an emerging company is the confidentiality agreement, also known as a non-disclosure agreement (“NDA”).  You are likely to routinely be involved in discussions with third parties about possible collaboration or partnering, and in these situations it is customary (and recommended) to enter into an NDA before proceeding with substantive discussions involving the disclosure of confidential information.  Whenever possible, you should try to use your own form of NDA which has been provided by your attorney.  However, as a startup you are likely to often be in the position of reviewing the other party’s form NDA, and if you are dealing with a much larger company, you may not have much, if any, negotiating leverage.  In an effort to help you help yourself, this blog post focuses on ten key issues to consider when reviewing another party’s form NDA.
Continue Reading Coping with Confidentiality Agreements

By Riaz Karamali

Many social media and social gaming companies have launched products and achieved remarkable viral growth on a relative shoe string, in the process setting a new standard for efficient utilization of capital and human resources. We are frequently approached by new entrepreneurs who are about to launch social media or social gaming ventures and asked to incorporate their startups. In keeping with the mantra of efficiency and economy, we like to take a step back and ensure that the time is in fact right to begin the incorporation formalities. It is possible to go through the incorporation process too early. It is also possible to be too late. Let’s take a quick look at some possible consequences of each mistake:Continue Reading Starting Up the Start-Up: When is the Right Time to Incorporate?