Yesterday, the SEC issued an enforcement order regarding Munchee’s token offering and SEC Chairman Jay Clayton released a general public statement on cryptocurrencies and ICOs. For those who previously read our post about the SEC’s report in the DAO, much of this might not be a surprise – although the SEC staff did answer the call of discussing so-called “utility tokens.”
The SEC action against Munchee is notable to us because Munchee had at least some argument that its tokens had utility. As quick background, the Munchee app is built around a crowd-sourced restaurant review concept. The Munchee app was built before the token offering. The Munchee tokens (MUN) were designed to function as an internal currency for “use in the Munchee app for rewards and interactions.” Munchee had a somewhat polished white paper, replete with disclaimers and carefully avoiding terms such as “ICO” and “investors,” and a management and advisory team with relevant technical and industry experience. For those of us working in this space, this fact pattern is familiar – and did not feel like the edge cases that had previously caught the ire of the SEC, such as a massive loss of investor capital or a recidivist promising 1,354% profit in less than 29 days.
So what takeaways can other potential token issuers glean from the Munchee order? How much “utility” is needed?