The going has gotten tough for any company with ICO ambitions in the United States. We know all too well that the SEC frowns upon this form of investing, especially since a lot of these projects might violate securities laws. Munchee, a project recently embracing the ICO concept for its blockchain-based food review service, has halted its crowdsale. It seems the SEC is concerned about the nature and purpose of these tokens.
Munchee ICO is Suspended Indefinitely
For once, news regarding the SEC and an ongoing ICO is not related to fraud or dubious investments. Instead, the government agency is concerned over how the Munchee ICO tokens will derive value. It appears this blockchain-based food review service was contacted by the Securities and Exchange Commission earlier this week. According to the agency, Munchee’s activities constituted unregistered securities offers and sales. Such dealings are against the law, which forced the company to suspend its ICO indefinitely.
It is evident the SEC will continue to crack down on any initial coin offering which may violate existing securities laws. This is also why the agency launched its Cyber Unit not too long ago. There are a lot more initial coin offerings out there than most people realize. Munchee is a rather interesting project, but concerns over its token model should not be taken lightly. Moreover, it appears this decision was somewhat amicable, as neither party is making too big a deal out of it.
Furthermore, it seems Munchee has even reimbursed investors before any of the tokens were issued. That was a smart decision, as it ensures no one will lose any money and allows the company to quickly look for other ways to fundraise. The food review service had an initial fundraising goal of US$15 million to improve its existing iPhone app. The tokens issued during this ICO were to be used to buy and sell goods and services as part of the Munchee ecosystem.
All of the proceeds generated by the ICO were to be used to build out this ecosystem and set up infrastructure to buy and sell the goods and services in question. Moreover, users would be paid in Munchee tokens for writing food reviews. There were also plans to sell advertising rights to restaurants and add in-app purchases. Unfortunately, most of this wasn’t to the liking of the SEC, as investors would have expected an increase in the value of these tokens due to the company’s efforts. This puts the Munchee tokens on par with securities, which can’t be issued by non-licensed entities in the US.
SEC Enforcement Division Co-Director Stephanie Avakian comments as follows:
We will continue to scrutinize the market vigilantly for improper offerings that seek to sell securities to the general public without the required registration or exemption. In deciding not to impose a penalty, the Commission recognized that the company stopped the ICO quickly, immediately returned the proceeds before issuing tokens, and cooperated with the investigation.
For the time being, it is unclear what Munchee’s team will do next. They can’t run another ICO campaign with their current business plan; thus, they will have to explore other options in this regard. Rest assured this will not be the last ICO to shut down due to the SEC intervening. It is evident that a lot of companies have good intentions, but the way they try to raise capital leaves something to be desired.