How NOT to Promote Your Cryptocurrency Project or Token

As an attorney who has been advising crypto-focused startups since 2017, I am frequently asked by my clients about what they can and cannot say when talking about their projects publicly. I therefore decided to compile a list of examples relied upon by the U.S. Securities & Exchange Commission (“SEC“) in its various “Cyber Enforcement Actions” to conclude that the offer and sale of the tokens being promoted in each of those cases involved investment contracts (and therefore securities transactions).

Please note that this list of examples is non-exhaustive, is merely a summary distilled from a few dozen cases (as well as from the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets“), is presented for informational purposes only, and is not intended to be legal advice (see the disclaimer at the bottom of the page for more on that).

1. Do not promote the token in terms that indicate it is an investment or that the solicited holders are investors. Examples where the SEC used this evidence to support its claim that a token issuer conducted an unregistered offering of securities include:
   • Where the issuer referred to token purchases as “investments” and highlighted the likelihood of significant return on capital on the investment. In re GTV Media Group, Inc., et al.
   • Where a member of the project team stated, “As a corporation, we are legally obligated to maximize shareholder value. With our current business model, that means acting to increase the value and liquidity of [our token].” SEC v. Ripple Labs, Inc., et al.
   • Where the issuer “paid promoters and others to tout [the token] as a good investment opportunity.” In re Enigma MPC
   • Where the issuer promoted a video in which a crypto influencer “use[d] his ‘ICO investing sheet’ to compare the … token offering to what he called the ‘Top 15 ICOs of all time’ and ‘speculate[d]’ that a $1,000 investment could create a $94,000 return.” In re Munchee, Inc.

2. Do not promote the potential profitability of the operations of the network, or the potential appreciation in the value of the token. Examples where the SEC used this evidence to support its claim that a token issuer conducted an unregistered offering of securities include:
   • Where the issuer stated that “demand created by the … ecosystem combined with the scarcity of the … tokens would increase the value of the tokens,“ and “[the project’s] mission is to make the value of [the] token go up.” SEC v. Rivetz Corp., et al.
   • Where the issuer stated that “the tokens’ value were expected to increase after the ICO and would at least increase above the … subscription price [of $2.50], if not higher.” In re Loci, Inc., et al.
   • Where a member of the project team stated, “I want the price of the token to be higher just as much as anyone else.” SEC v. LBRY, Inc.
   • Where a member of the project team stated that “if the … network is widely adopted as a payment system[, one] would expect increased demand to increase price.” SEC v. Ripple Labs, Inc., et al.
   • Where the issuer stated that “since the total volume of [the token] is fixed, token exchange among the growing population of retail partners and customers implies a general growth model for [the token’s] value.” In re BitClave PTE Ltd.
   • Where the issuer stated that “[m]ore demand” for the token would mean “[v]alue goes up” and, therefore: “Buy today, sell tomorrow, profit.” SEC v. Kik Interactive Inc.
   • Where the issuer stated that “as our platform grows and more websites buy our services, the value of the coin increases.” In re Gladius Network LLC
   • Where a member of the project team stated that the tokens were “designed to appreciate in value as our solutions are adopted throughout the cannabis industry and around the world.” In re Paragon Coin, Inc.
   • Where the issuer posted the following on social media: “199% GAINS on [the] token at ICO price! Sign up for PRE-SALE NOW!” In re Munchee, Inc.

3. Do not promote the expertise of the project team or its ability to build or grow the value of the network or token. Examples where the SEC used this evidence to support its claim that a token issuer conducted an unregistered offering of securities include:
   • Where the issuer “touted the ‘management, financial, investment, and merger and acquisition’ experience of the [issuer’s] management team and agents.” In re GTV Media Group, Inc., et al.
   • Where the issuer stated that its “founders have played a critical role in the creation, development and adoption of Trusted Computing,” and emphasized its “revenue producing” contracts with the Department of Defense and Homeland Security.” SEC v. Rivetz Corp., et al.
   • Where the issuer promoted the experience of the management team and its plans to expand the team, including sales and marketing. In re Loci, Inc., et al.
   • Where the issuer promoted the project team’s “technical prowess and business acumen.” SEC v. LBRY, Inc.
   • Where the issuer “highlighted the experience and expertise of its team members, in addition to publicizing the names of various ‘advisors’ and describing their advisors’ experience in the digital asset and business world.” In re ShipChain, Inc.
   • Where the issuer “identified several team members on its website and boasted that the team ‘consists of 20 engineers and [an] advisory board of world-class talents in the fields of security, payments, and blockchain.’” In re BitClave PTE Ltd.
   • Where the issuer promoted the project team’s “background and prior work in the space, [its] ties to academia, [its] dedicated partners and investors, and the funding contributed by [its] community.” In re Enigma MPC
   • Where the issuer “highlighted that its team had experience in cryptocurrency, business development and operations, social media, and software development.” In re Blockchain of Things, Inc.
   • Where the issuer highlighted that its team brought “a depth of experience across business, technology, blockchain, smart contracts, and the cannabis industry.” In re Paragon Coin, Inc.
   • Where the issuer highlighted that “its founders had worked at prominent technology companies and highlighted their skills running businesses and creating software.” In re Munchee, Inc.

4. Do not promise further developmental efforts in order for the network or token to attain or grow in value. Examples where the SEC used this evidence to support its claim that a token issuer conducted an unregistered offering of securities include:
   • Where the issuer “discussed plans to develop the … platform’s capability to process transactions using [its tokens] and stated that the [project] team would be ‘making an all-out effort to completely upgrade the [network].’” In re GTV Media Group, Inc., et al.
   • Where the issuer stated that “we will keep developing our platform and make it as useful as possible hence increasing the demand for the [token].” In re Loci, Inc., et al.
   • Where the issuer stated that “the token only gain[s] value as the use of the protocol grows.” SEC v. LBRY, Inc.
   • Where the issuer stated, “As time lapses the features and utility of [the token] will go up as we continue to build the platform.” In re CarrierEQ, Inc., d/b/a Airfox

5. Do not promote the availability of a market for trading of the token or promise to create or support a trading market for the token. Examples where the SEC used this evidence to support its claim that a token issuer conducted an unregistered offering of securities include:
   • Where the issuer posted on social media that it was “working with a number of exchanges.” SEC v. Rivetz Corp., et al.
   • Where one of the consultants engaged by the issuer told prospective investors that the issuer was engaged in efforts to have the token traded on secondary market digital asset trading platforms. In re Tierion, Inc.
   • Where the issuer stated that it would “work to enter into listing agreements with exchanges to allow for ease of liquidity and settlement of [the] tokens into other currencies” and that it planned to have the the token be “omnipresent across popular, high-volume exchanges.” In re ShipChain, Inc.
   • Where the issuer’s CEO promised that “the token will go on to a bunch of exchanges where you can exchange it for other cryptocurrencies, or even other fiat currencies.” SEC v. Kik Interactive Inc.
   • Where the issuer stated that “[w]e’ve been approached by some of the largest exchanges, they’re very interested,” and represented that the token would be available to trade on “major” trading platforms. In re Gladius Network LLC
   • Where the issuer made clear to prospective investors that it planned to enter into agreements with token exchanges to ensure that its token would be traded on the secondary market. In re CarrierEQ, Inc., d/b/a Airfox
   • Where the issuer stated that its tokens would be listed on “major” secondary platforms following the offering. In re Paragon Coin, Inc.
   • Where the issuer ensured that its tokens would be “available on a number of exchanges in varying jurisdictions to ensure that this is an option for all token-holders.” In re Munchee, Inc.

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