The SEC’s latest enforcement action and its Chairman’s statement clarify the application of securities laws to ICOs and cryptocurrency markets.

Introduction -

On December 11, 2017, the US Securities and Exchange Commission (SEC) issued an order (Order) instituting cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 with respect to Munchee Inc. (Munchee). Munchee, a California-based company, was in the process of offering digital tokens (designated as “MUN” tokens) to investors through an initial coin offering (ICO).1 In the Order, the SEC determined that the ICO was an offering of securities without registration or an available exemption, notwithstanding that the digital tokens offered and sold in the ICO were intended to have a utility function.