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SEC Halts This Restaurant Review App's Initial Coin Offering

The Securities and Exchange Commission (SEC) headquarters building stands in Washington, D.C. Joshua Roberts—Bloomberg/Getty Images

The Securities and Exchange Commission has stepped in to stop an “initial coin offering” (ICO) from a restaurant review app, after the company failed to register it as a security.

Privately-held Munchee agreed to halt its offering and refund investor proceeds after the SEC contacted the company on Nov.1, the regulator said on Monday.

The use of ICOs, which rely on cryptocurrencies and leverage technologies such as blockchain to raise capital, has led to heightened scrutiny from regulators.

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The SEC objected to Munchee’s plan to raise $15 million in capital by selling “MUN tokens,” which could be purchased or earned by users for writing restaurant meal reviews on its app. The company also said it was in talks with restaurants to accept those tokens for meals, and to sell advertising in exchange for tokens, and that the tokens could increase in value.

The SEC said investors could reasonably expect a return on its investment in MUN tokens, which in turn would make it a security requiring SEC registration.

The SEC contacted Munchee on the second day it sold tokens, and the company shut down the offering “within hours” of hearing from the regulator. The company did not deliver any tokens and returned proceeds to investors, according to the SEC’s order.

“In deciding not to impose a penalty, the Commission recognized that the company stopped the ICO quickly,” said Stephanie Avakian, the co-director of the SEC’s enforcement division.

Munchee consented to the SEC’s order without admitting or denying the findings. The company did not immediately respond to a request for comment.

On Nov. 2, the company said on Twitter it had “elected to close its current token offering to ensure it is in compliance with applicable laws/regulations” and was issuing refunds.

Monday’s enforcement action was significant because it showed the regulator would step in to address ICOs for registration violations, even if there were no claims of fraud, according to SEC officials.

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The cryptocurrency market is tracking how regulators respond to ICOs, which SEC Chairman Jay Clayton has said closely resemble new company initial public offerings and should be transparent.

Earlier this month, the SEC’s newly created cyber unit filed its first ICO charges against a privately held company, PlexCorps, saying it had defrauded investors with its “PlexCoin” ICO. That case is pending in a New York federal court.

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