SEC Halts ICO – What can we learn?

A Company, Based in California, had to stop it’s ICO short, according to the SEC. The SEC released a statement confirming that Munchee Inc. refunded contributors to the ICO after the SEC intervened.

This statement said Munchee Inc was trying to raise $15 million through it’s crowdfunding. Their plans was to use this money to fund it’s blockchain  food review service. In the meantime, the company has removed the token page on their website . This means we cannot really give you an opinion on the precise nature of what happened but we will try.

Firstly, the token sale appeared as the sale of  a security. As we have discussed several times, the mere promoting of your token’s potential increase in price, will potentially make it fall foul of security rules. This holds true especially in the US. EU securities regulation are currently much clearer as to what is a security.

Second, the Company emphasised that it would take steps not only to list the tokens, hence creating a secondary market, but would also support this.

This, again according to the SEC, means Investors would have a reasonable belief that their tokens could generate a return. Now, we are not going to go into the specific merits of Munchee’s ICO, as we were unable to put enough facts together. Clearly, however, the regulator is keeping a close eye on ICOs (and rightfully so). Another thing we can learn is that just having what appears to be a Utility token, does not exempt you from regulation and consumer protection regulations.

Launching your ICO?

Launching an ICO is not something you should do lightly and without due consideration.

When running an ICO, you are asking individuals to part with their hard earned Crypto. Ok, but they could have sold out earlier couldn’t they? You are asking them to do so to assist you in pushing your project forward. You are however promising them something in return. This does not need to  take the form of a financial return. This promise is in your White Paper and terms and Conditions.

You need to ensure whatever you put in your ICO documentation is achievable and realistic. You also must ensure you do go out and fulfil (or at least try) your promises.

 Ensuring your token offer is carried out within the remits of the Law.

There are also several rules and regulations which indirectly influence a ICO offering. This is why you need to ensure your offering does not fall foul of all legislation. Not abiding to any such legislation will expose yourself, company and ICO unwanted risks and risks are bad for business.

In the above example, the regulator did not attack the nature of the token, it attacked the nature of the offer. The fact that you are considering an ICO means that you have a great business idea. Why would you risk putting your idea and yourself in jeopardy by cutting corners?

Contact us directly on +356 20103020 or by mail at [email protected] to find out how E&S can help you in ‘making things happen’.