Pocketful of Quarters (PoQ) can breathe a sigh of relief today. The SEC announced that it will not take action against the gaming rewards company. This is only the second time the SEC has issued a “no-action” notice to a token seller.
In the notice, Jonathan Ingram, chief legal officer for the SEC’s FinHub, wrote,
“Based on the facts presented, the Division will not recommend enforcement action to the Commission if, in reliance on your opinion as counsel that the Quarters are not securities, PoQ offers and sells the Quarters without registration under Section 5 of the Securities Act and does not register Quarters as a class of equity securities under Section 12(g) of the Exchange Act.”
CONGRATS @BuyQuarters, @weiks & @NYcryptolawyer—this advances the ball for the #crypto industry in the US, one step at a time. Pocketful of Quarters was a key sponsor of the inaugural @wyohackathon—happy to see successes for our sponsor companies! https://t.co/pEyGyZ6Stu
— Caitlin Long 🔑 (@CaitlinLong_) July 26, 2019
With PoQ, gamers can purchase tokens using USD or ETH and the tokens, or “Quarters,” become transferable between different games. This way users don’t have to “cash-out” when they want to play a new game; they can bring their winnings with them.
There are Still Rules, Many Rules
To maintain their status as non-security, they must adhere to a strict set of guidelines. Here are some of note:
• “To create an Approved Account, Developers and Influencers will be subject to KYC / AML checks at account initiation as well as on an ongoing basis;”
• “Quarters will be made continuously available to gamers in unlimited quantities at a fixed price;”
• “PoQ will not use any funds from Quarters sales to build the Quarters Platform, which has been fully developed and will be fully functional and operational immediately upon its launch and before any of the Quarters are sold;”
• “PoQ will market and sell Quarters to gamers solely for consumptive use as a means of accessing and interacting with Participating Games.”
Blockchain Space Seems Encouraged, Sort of
Although this should be viewed as a win for those seeking more freedom within the blockchain space, several people took to Twitter to express their lack of enthusiasm.
Marco Santori, president and chief legal officer of crypto wallet company Blockchain, puts it somberly,
10/ Congrats cryptoland, we have achieved no-action letter status for… arcade tokens.
— Marco Santori (@msantoriESQ) July 26, 2019
Stephen Palley, a lawyer specializing in the blockchain space, echoes Santori’s sentiment but adds some understanding,
It's a shame that people have to go to the trouble of getting a no action letter to state the obvious but given the abuses we've seen the last few years the prudence is more than understandable and this was a nice work.
— Palley (@stephendpalley) July 26, 2019
A Framework for the Future
In March, the SEC issued its first no-action notice to TurnKey Jet, a U.S.-based business travel company. They are now allowed to sell their tokens, which are not defined as securities, so long as they adhere to similar rules as PoQ. In each case, the tokens must maintain a fixed price and cannot be transferred to external wallets. Also, the companies cannot use any funds from token sales to develop their platforms.
"My hopes and dreams are that this would be widely adopted by players and make games better for everyone. I don't want other people to have to have their coins stuck in games." – George @thiskidceo #TheStruggleIsReal https://t.co/12hrz6X1Gv pic.twitter.com/8ANrvr6BRR
— Pocketful of Quarters (@BuyQuarters) November 19, 2018
With several of the stipulations for the two rulings aligning, we may slowly start to get an idea of how the SEC separates securities from utility tokens. The good news is that if a company with a 12-year-old CEO can pass the regulation gauntlet, then others could soon follow.