Summary
On December 11, 2017, the U.S. Securities and Exchange
Commission (SEC) issued a cease-and-desist order against Munchee
Inc. ("Munchee") to stop Munchee's
Initial Coin Offering (ICO) and require it to return to investors
the funds it collected through the sale of its MUN token (the
"Munchee Order"), which the SEC deemed
to be securities. See the discussion in our December 18 Update, ICO Wars: The SEC Strikes Back.
The Munchee Order provides insight into some of the token issuer
activities the SEC will consider in determining whether tokens
issued during ICOs are securities. The SEC employs a four-part test
– the Howey Test – to determine whether a financial
instrument or investment contract is a security. In the context of
tokens, the crucial elements of this test are whether the tokens
represent "an investment in a common venture premised on a
reasonable expectation of profits to be derived from the
entrepreneurial or managerial efforts of others".1 In
