SEC Halts $15 Million Munchee App ICO – What Went Wrong?
The Securities and Exchange Commission has stepped in to halt a new initial coin offering from the Muchee restaurant review app. The halt is the second case to be brought by the SEC’s new Cyber Unit, and has occurred after the company failed to their ICO as a security.
Munchee, a privately held company, has agreed to completely halt it’s initial coin offering and perform a full refund of all investor funds after the SEC contacted the organization on the 1st of November. The SEC released a report on Monday stating that the “MUN Tokens” sold in the Munchee ICO fit the hallmarks of a security.
The move comes in the wake of a warning released by the SEC advising investors against investing in the platform as it did not conform to US securities laws. The use of initial coin offerings to generate startup capital by blockchain-based platforms has recently captured a significant amount of attention from regulatory bodies around the world as billions of dollars have been pumped into the unregulated industry in the last year.
The Securities and Exchange Commission raised objections to Munchee’s ICO, which aimed to capture $15 million USD through the sale of “MUN Tokens”. These tokens could be earned by users for writing restaurant reviews on the Munchee app, or purchased directly. According to Munchee, the platform was negotiating with several restaurant chains to facilitate the transfer of MUN Tokens for meals, or the purchase of advertising space.
According to Munchee, investors could expect a return on investment form the rise in value of MUN Tokens, which according to the SEC would make said tokens a security that requires SEC registration.
The SEC move to contact Munchee occurred on the second day of the token crowdsale. Munchee ceased ICO operations within hours of hearing from the SEC, and as a result did not deliver any MUN Tokens. All investors that participated in the token sale were refunded, according to the SEC’s order.
Stephanie Avakian, the co-director of the SEC’s enforcement division, commented on the halt:
“In deciding not to impose a penalty, the Commission recognized that the company stopped the ICO quickly,”
Munchee has not yet made any public statements on the SEC-enforced halt of their ICO, but consented to the SEC’s order without either admitting or denying the findings. The only statement on the issue made by Munchee regarding the halt was a Twitter update posted on November 2nd, which stated that Munchee “elected to close its current token offering to ensure it is in compliance with applicable laws/regulations”, and that it was issuing refunds to all investors.
This enforcement is a significant move by the SEC, who has made it apparent that they will now step in to address initial coin offerings for perceived regulatory violations, regardless of whether or not there are any claims of fraud.
Cryptocurrency market investors and observers are closely tracking regulatory movements regarding the initial coin offering ecosystem. SEC Chairman Jay Clayton issued a statement today on the ICO market, stating:
“A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.”
In early December 2017 the newly-created SEC cyber unit filed its first charges against PlexCorps, a privately held company that the SEC claims “defrauded” investors in its initial coin offering. The PlexCorps case is currently pending in a New York Federal court.