<\/p>\n
<\/p>\n The ICO was for tokens for esports gambling<\/a> \u2014 and Unikrn did properly register its subsidiary Unikrn EU in Malta<\/a> as a gambling company, apparently taking a year to get this thoroughly in order.<\/p>\n The plaintiff, US citizen John Hastings, is suing on the grounds that Unikrn called it a utility token and made out it wasn’t a security\u00a0\u2014 then promoted it as though it was.<\/p>\n The interesting bit is that Unikrn registered the offering with the SEC as a SAFT under Regulation D, section 506(c)<\/a> \u2014 the legal construct that a lot of ICO promoters are hoping is the safe option. Rather than selling tokens directly, you sell an option to buy a token in the future\u00a0\u2014 in the hope that, even though the SAFT is a security with various inconvenient restrictions, the future token won’t be.<\/p>\n A 506(c) offering is for accredited investors only<\/a> \u2014 you have to be rich enough to waste your money on potential foolishness, or prove that you’re a “sophisticated investor” if you’re not rich. Most of the work is properly checking your investors’ financial standing and know-your-customer<\/a> details.<\/p>\n Unikrn appears not only to have made no effort to verify the investors were accredited\u00a0\u2014 but didn’t even mention 506(c) or that the investors had to be accredited, in either the token’s terms of sale<\/a> or its white paper.<\/a> The registration site<\/a> asked only for name, phone number (optional), Ethereum address, email and purchase amount (from 0 to $1,000,000).<\/p>\n So any non-accredited retail investor could have just bought some\u00a0\u2014 and evidently, they did.<\/p>\n The suit<\/a> is well worth a read.<\/p>\n The interesting claim in the suit is that running an offering of tokens as a SAFT doesn’t make the eventual tokens not a security \u2014 if you talk about the eventual tokens a whole lot, and speak of them as an investment that people will make money from:<\/p>\n 50. When determining whether a security has been offered and sold, the focus must be on the economic realities underlying the transaction. Here, the economic realities are that Plaintiff and the Class invested ETH in order to receive UKG Tokens, which they were conditioned to expect would be worth more than their initial virtual currency investments. Indeed, Defendants often touted the potential profit to be made from investing in the UKG ICO.<\/p>\n 51. For example, in a blog post on Medium, Rahul Sood refers to the UKG Token as an asset that is \u201cpoised to become the decentralized token for esports and gaming,\u201d and promises that \u201c[u]sers will get tons of use in esports, gaming, software, hardware, tournaments, teams, brands, betting and video games writ large.\u201d He writes, \u201cWe simply need to have a crypto asset to keep up with our product\u2019s growth.\u201d In an image within the blog, he acknowledges that the UKG Token will be convertible to Ethereum at selected cryptocurrency exchanges. He also writes that token buyers can use in-game skins to buy UKG Tokens.<\/p><\/blockquote>\n It goes deep into Reddit threads and YouTube videos \u2014 as was made clear in the SEC’s administrative order against Munchee,<\/a> they regard every word you speak or write anywhere as part of your offering.<\/p>\n 53. On August 29, 2017, in Defendant Sood\u2019s AMA interview he confirmed that the UKG Tokens are meant to hold value and allow people to cash out and make money.<\/p><\/blockquote>\n Expect to see a lot more of these. This suit doesn’t mention the Munchee administrative order<\/a> (PDF), but I’d think the lawyers had read it\u00a0\u2014 and it’s pretty much a template.<\/p>\n Per Stephen Palley:<\/a> “Initial coin offerings (‘ICOs’) are typically accompanied by a whitepaper, or as lawyers like to call them ‘evidence.'” Stephen spotted this one,<\/a> and is now sitting back going “I told you so.”<\/p>\n![\"\"](\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2018\/08\/unikrn-logo.png\"){kind=logo}
<\/a><\/p>\n![\"\"](\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2018\/08\/unikorn-gold.jpg\")
<\/a><\/p>\n
![\"\"](\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2018\/08\/unikrn-hero.jpg\")
<\/a><\/p>\n![\"Become](\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2021\/10\/become_a_patron_button.svg\" "\\"Become")
<\/a>