The US top regulator today issued a No Action Letter assuring operatives of a cryptocurrency-based startup called IMVU that it will not take enforcement action against them for selling their digital tokens.
In a statement, the Securities and Exchange Commission (SEC) explained the rationale behind the decision. It basically means that the SEC has recognised that selling IMVU’s VCOIN tokens will not be considered a security sale, and therefore, it does not need to be registered as such.
The no-action letter states that the SEC’s Division of Markets and Trading will not recommend an enforcement action based on a number of assumptions that include, among other things, that the VCOIN tokens will not be traded on secondary markets. Additionally, the sale must be subject to know-your-customer and anti-money laundering requirements.
“Based on the facts presented, the Division will not recommend enforcement action to the Commission if, in reliance on your opinion as counsel that VCOIN is not a security, IMVU offers and sells VCOIN, which is transferable both on and off of IMVU’s platform, without registration under Section 5 of the Securities Act and does not register VCOIN as a class of equity securities under Section 12(g) of the Exchange Act. Capitalized terms have the same meanings as defined in your letter,” the watchdog further explains.
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Based in Redwood City, California, IMVU is a 3D avatar-based social networking platform. It allows registered users to customize their characters, connect with friends in 3D chat rooms, and make new ones around the world through shared experiences. IMVU also hosts a marketplace featuring a catalog of virtual goods made by over 50,000 creators.
Like other social networks, IMVU is aiming to create a crypto-centered media platform and a decentralized ecosystem whereby all participants hold a stake in its growth and thus earn money for their contributions to the network.
Interestingly, the clearance letter includes eight key restrictions related to the IMVU offering. Notably, the company has promised not to use any funds from token sales to develop its platform, network and applications, each of which will be fully developed and operational before the tokens are sold. Furthermore, IMVU will impose limits on VCOIN purchases, conversions, and transfers and the token holders will be subject to KYC/AML checks.
The conditions, which were presented by IMVU and are not part of any official request by the SEC, also require the company not to promote the listing of tokens on third-party trading platforms.