Article By : Patrick Mansfield | U.S. Consumer Finance
A California based food review company was denied the right to sell digital tokens to raise capital for it’s blockchain review service. The SEC concluded that the Initial Coin Offering (ICO) was considered an unregistered security offer. The food review business was required to refund investor proceeds, after the ruling was delivered. Munchee Inc, was looking to raise $15 million in capital to invest in its iPhone App, that allows users to buy and sell goods using tokens (Coins). The company planned to improve on its App to eventually allow Munchee’s to pay writers to write food reviews, and sell advertising to restaurants.
According to the SEC order, the SEC stated “In the course of the offering, the company and other promoters emphasized that investors could expect that efforts by the company and others would lead to an increase in value of the tokens. The company also emphasized it would take steps to create and support a secondary market for the tokens”. Furthermore, the SEC went on to state, “As the SEC has said in 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”.
What Does This Decision Mean For Future Initial Coin Offerings?
The SEC has initiated one of its first findings regarding the ICO market. It might serve as a warning shot to future ICO’s. The SEC concluded in it’s finding that they will continue to scrutinize the ICO markets for improper offerings that offer to sell securities to the public without required registration. The SEC did not impose a financial penalty to Munchee’s, as they cooperated with the cease-and-desist order. All proceeds from the offering were immediately returned to investors.
Steven Peiken, co-Director of the SEC Enforcement Division, went on to say, “Our primary focus remains investor protection and making sure that investors are being offered investment opportunities with all the information and disclosures required under the federal securities laws,”