Company Halts ICO After SEC Raises Registration Concerns

Company Halts ICO After SEC Raises Registration Concerns

Company Halts ICO After SEC Raises Registration Concerns

Today, the Securities and Exchange Division announced it had halted an Initial Coin Offering (ICO) as an unregulated securities offering. "To date no initial coin offerings have been registered with the SEC".

In a statement posted to the agency's website, Clayton alluded to rumours of a cryptocurrency bubble, writing that "We are hearing the familiar refrain, 'This time is different.'" He went on to caution investors that there is a significant risk that returns may be lower than anticipated or that their money could be stolen, as well as warned market makers that the SEC essentially considers coin offerings to be securities.

Chairman Clayton points to concerns that have been raised tied to a lesser standard of protection from startups behind upcoming ICOs versus traditional securities.

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These tokens typically use blockchain, which uses cryptography to record transactions which can then be authenticated. The company sought to raise US$15 million to finance the development of its blockchain-based food review service. That would require companies staging ICOs to issue standardized disclosures stating the risks involved with investing, or else demonstrate to the SEC's satisfaction why the product being offered doesn't qualify as a security.

There is confusion whether bitcoins and cryptocurrencies should be regulated as a "currency" or a "commodity".

The Commission explained, "In connection with the offering, Munchee described the way in which MUN tokens would increase in value as a result of Munchee's efforts and stated that MUN tokens would be traded on secondary markets".

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The SEC determined that MUN tokens were securities pursuant to Section 2 (a)(1) of the Securities Act and also found that "MUN tokens are "investment contracts" under SEC v. W. J. Howey Co., 328 US 293 (1946) and its progeny". "In deciding not to impose a penalty, the Commission recognised that the company stopped the ICO quickly, immediately returned the proceeds before issuing tokens, and cooperated with the investigation". "A token can be a security based on the long-standing facts and circumstances test that includes assessing whether investors' profits are to be derived from the managerial and entrepreneurial efforts of others", it said.

Moreover, the cease-and-desist order indicates that the SEC was not swayed by Munchee's self-serving statements that it believed it was complying with the securities law.

And in a move closely watched by industry observers, Clayton reiterated that he had no patience for those who argue that the physical token - the object given to investors who participate in an initial coin offering - is not a security, and that ICOs should therefore be exempt from the SEC's normal securities law.

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