By Anne Sherry, J.D.
As it promised it would do earlier in the month, the SEC has published the first “bedbug” letter on EDGAR. The letter from staff of the Division of Corporation Finance concerns a proposed token offering by Monster Products, Inc. Rather than engage with the registrant through the comment letter process, the staff explained that Monster’s Form S-1 contains such serious deficiencies that CorpFin will not perform a detailed examination of the filing.
On June 12, CorpFin announced that it would deal publicly with grossly deficient filings by publishing the SEC’s letters to noncompliant companies beginning June 15. The Division said that it would be publicizing the letters as part of the SEC’s effort to improve the transparency of its filing review process. As part of that process, CorpFin does not even review certain filings that fail to meet minimal standards of completeness. The Division said in its June 12 announcement that the new policy “will make it clear that the Division believes the filing under consideration is not minimally compliant with statutory or regulatory requirements.”
Monster Products, Inc., filed its Form S-1 registration statement on May 25 in connection with an offering of up to three hundred million Monster Money Tokens. According to the prospectus, the producer of audio-visual cables and other hardware “is shifting focus away from simply building its product range to pursuing alternative retail platforms and implementing new marketing campaigns.” Monster said it plans to use Ethereum blockchain technology in its e-commerce website to create the Monster Money Network, where customers can use Monster Money Tokens or fiat currency to purchase Monster products and services.
The offering would be priced at $1 per Monster Money Token, with no minimum offering amount required as a condition to close. In the event that the tokens have not traded on a cryptocurrency exchange or U.S. stock exchange by mid-2020, or have ceased trading before mid-2020, due to regulatory or listing hurdles, investors in the tokens may convert them into Monster common stock at the rate of four tokens per share of stock.
In the bedbug letter, CorpFin staff explain that the filing “fails to comply with the requirements of the Securities Act of 1933, the related rules and regulations, and the requirements of the form.” Because of these deficiencies, Monster should not assume that its filing may be relied upon for the purposes of Section 5(c) or compliance with any other rule or regulation. Furthermore, the Division would likely recommend that the SEC deny any request to accelerate the effective date of the filing in its present form.
At present, SEC staff comment letter dialogs with companies are released on EDGAR no earlier than 20 business days following the completion of the filing review process. By contrast, letters regarding seriously deficient filings will be available on EDGAR within 10 calendar days after they are issued to a company. The letter to Monster is dated June 15.