Munchee stops ICO, refunds investors after registration concerns by SEC

The U.S. Securities and Exchange Commission (SEC) announced in a press release it sent to CoinReport that San Francisco, California-based food review mobile app firm Munchee has halted its Initial Coin Offering (ICO) after being contacted by the SEC, and consented to an order in which the commission discovered that the company’s action represented unregistered securities offers and sales. Munchee has also refunded investor proceeds before any tokens (MUNs) were delivered to investors, as per the SEC’s order.

Munchee was seeking $15 million in capital in order to enhance its app focused on restaurant meal reviews and build an ”ecosystem” in which the company and others would purchase and sell goods and services using MUNs. The company intended to use the funds to build the ecosystem, including finally paying users in MUNs for writing food reviews and selling both advertising to eateries and “in-app” purchases to app users in exchange for MUNs.

The order says that during the offering, Munchee and other supporters stressed that investors could anticipate efforts by the firm and others would lead to an increase in MUN’s value. The firm also underlined that it would proceed to form and back a secondary market for MUNs. Because of these and other activities by the firm, investors would have had a reasonable certainty that their investment in MUNs could get them a return on their investment. As the SEC has noted in the DAO Report of Investigation, a token can be a security depending upon the established facts and circumstances test that includes evaluating whether investors’ revenues are to be gained from the entrepreneurial and managerial actions of others.

Stephanie Avakian, co-director of the SEC’s Enforcement Division, stated in the press release we received, ”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.”

Steven Peikin, co-director of the division, commented, ”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.”

Munchee agreed to the cease-and-desist order by the SEC without accepting or repudiating the findings.

The SEC’s new Cyber Unit was formed as part of the commission’s Enforcement Division in September to center the division’s cyber-related proficiency on misconduct related to blockchain/distributed ledger technology and initial coin offerings, the spread of untrue information via electronic and social media, brokerage account takeovers, hacking to get nonpublic information and threats to trading platforms. Moreover, the SEC has a Distributed Ledger Technology Working Group that centers upon several developing applications of distributed ledger technology in the financial industry.

The investigation was conducted by the Cyber Unit and Complex Financial Instruments Unit, including James Murtha, Brent Mitchell and Jeff Leasure.  Valerie A. Szczepanik, Reid Muoio and Robert Cohen supervised the case.

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