US SEC official highlights key questions on cryptocurrency investment funds

US SEC official highlights key questions on cryptocurrency investment funds

"A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are now operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation", Clayton added.

In a separate statement discussing the ICO market in general, SEC Chairman Jay Clayton said that although ICOs "can be effective ways for entrepreneurs and others to raise funding, including for innovative project", investors need to remaining highly vigilant. "Because of these and other company activities, investors would have had a reasonable belief that their investment in tokens could generate a return on their investment", the SEC says.

His statements were not entirely negative.

After the crackdown on the PlexCoin initial coin offering (ICO) earlier this month, Munchee appears to be the next to have been nabbed by the long arm of the law.

The SEC announced in July that ICOs were subject to securities law, in particular registration and disclosure requirements, where the token offered constituted a financial security.

"Replacing a traditional corporate interest recorded in a central ledger with an enterprise interest recorded through a blockchain entry on a distributed ledger may change the form of the transaction, but it does not change the substance", he said.

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Munchee, based in San Francisco, was trying to raise $15 million to improve its app, but the SEC said that would have been similar to issuing securities without properly registering with regulators.

Under Clayton, who joined the SEC in January following a nomination from President Trump, the Commission has been cautiously expanding its enforcement of cryptocurrency regulation.

According to the SEC, the company was trying to create what it called an ecosystem - a marketplace where it could pay users in tokens for writing food reviews and sell advertising to restaurants.

A California company raising funds through an initial coin offering for a service promising to take on Yelp Inc. has refunded subscribers after the Securities and Exchange Commission launched an investigation into whether it was raising funds illegally.

These claims, according to the SEC, were created to encourage among investors "a reasonable belief that their investment ‎in tokens could generate a return on their investment" - this, in turn, classifies the tokens as a security, which requires registration with the SEC. Its tokens, however, wouldn't be functional until at least 2018 and the SEC deemed their value was contingent on the "managerial and entrepreneurial efforts of others". Munchee agreed to withdraw the offering, avoiding a penalty from the Commission.