In the recent months, the SEC issued dozens of subpoenas to companies, which conducted their ICOs last year and earlier this year to provide documents and information in connection with their token offering. As had been confirmed by the SEC officials, the SEC is heavily investigating the cryptocurrency market, especially in connection with the Initial Coin Offerings (ICO).
Currently, many token sales are essentially unregistered offerings of securities, which are a clear violation of the U.S. law. An absence of the already build product, promises of the token value growth and return on investment, a listing on the exchanges, and other factors are all contributing to the public’s view of a token as a speculative instrument.
So even though the actual token model may have no direct profit payable by the token issuing company to the token holders, the way the ICO is conducted may make any token a security if such offering involves promise of a financial gain as a result of the token value appreciation due to the company’s efforts.
Just like in the case of Munchee’s token MUN
, which offering was halted by the SEC last year for exactly these reasons, many companies that promise profitable trading of their tokens will face the consequences of disgorgement with possible additional penalties.
Written by Katrina Arden
Attorney and founder of Blockchain Law Group