IMVU, Inc. may issue its VCOIN without registering the token under federal securities laws provided that the company’s coin offering adheres to stated conditions. The no-action relief to IMVU marks the third time the Division of Corporation Finance has said it would recommend that the Commission not bring an enforcement action if a token is not registered as a security under the federal laws (no-action letter; incoming letter).
Conditions of VCOIN offering. IMVU is a Redwood City, California company that develops online communities such as the IMVU "online three-dimensional avatar-based social communit[y]," considered by IMVU to be one of the largest of its kind. The no-action letter issued to IMVU listed eight conditions agreed to by the company for its token offering. Specifically, absent changed circumstances, the no-action letter said enforcement forbearance would be recommended if:
- IMVU will not use proceeds from the sale of VCOIN to finance its Upgrade, which has been fully developed and will be fully functional and operational immediately upon its launch and before any VCOIN is sold;
- VCOIN will be immediately usable for its intended purpose at the time it is sold;
- IMVU will impose specified limits on VCOIN purchases, conversions, and transfers;
- VCOIN holders will be subject to KYC/AML checks when they establish Open Wallets and thereafter on an ongoing basis;
- VCOIN will be made continuously available in unlimited quantities and at a fixed price, and IMVU will always generate enough supply of VCOIN to maintain VCOIN’s fixed price;
- IMVU will not promote or support listing or trading of VCOIN on any third-party trading platform;
- IMVU will market and sell VCOIN to Users solely for consumptive use as a means of exchanging value on, and in connection with, the Platform; and
- IMVU will require Users who purchase VCOIN from IMVU to affirm that, among other things, they are acquiring the VCOIN for consumptive use and not for speculative purposes.
Previously, CorpFin extended similar no-action relief to two other companies. In one instance, TurnKey Jet, Inc., a Florida-based Delaware company, planned to offer a tokenized business jet service (no-action letter, incoming letter). In the other instance, Pocketful of Quarters, Inc. (PoQ), a Delaware private corporation with its headquarters in Connecticut, developed its Quarters token to facilitate gamers’ ability to use a single token across multiple, participating online video gaming environments thus reducing the "frustrations" gamers had voiced about having to deal with holding a unique coin for each game they play (no-action letter, incoming letter).
A comparison of the three no-action letters’ conditions suggests a number of similarities. For one, all three letters require the companies not to use proceeds from token sales to develop their platforms, which must be fully functional and operational before token sales begin. Second, the tokens must be useable for their intended purpose at the time of sale. Third, all three letters impose limits on transfers and related conversions or other transactions. Fourth, tokens must be continuously available at a fixed price. Fifth, the tokens must be marketed and sold for a consumptive purpose on the platform; the IMVU letter further specifies that VCOIN buyers must affirm their consumptive purpose in acquiring tokens as opposed to having a speculative purpose.
However, there are some differences in the conditions applicable to the three tokens. For example, only the IMVU and PoQ letters explicitly mention KYC/AML checks, but the incoming letter for TurnKey Jet does discusses these matters at length. Likewise, only the IMVU letter specifically mentions that tokens must not be promoted or supported on third-party trading platforms. But again, PoQ and TurnKey Jet said in their incoming letters that their tokens would not be tradeable on such platforms due to restrictions on users and the economic infeasibility of trading the tokens for speculative purposes.