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.
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