Gaming Rewards Company Cleared By SEC, Token Sales Allowed

An announcement by the SEC will send relief across the crypto industry in general as the regulatory body has let Pocketful of Quarters (PoQ) off the hook. The SEC announced that there will be no action taken against PoQ. This announcement is only the second “no-action” notice that the regulator has issued to a token seller.

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

The notice was written by Jonathan Ingram, Chief Legal Officer for the SEC’s FinHub. The notice says that the division will not be enforcing any action against PoQ based on the facts and the opinion of counsel that Quarters are not securities. PoQ offers and sells the Quarters without registration and this is where the inquiry about whether or not they were in violation of the Securities Act came from.

PoQ is a gaming rewards company and through it, players can buy tokens using Ethereum or USD. The tokens that are purchased are called Quarters and they are transferable between different games. This means that gamers do not need to cash out from one game and repurchase tokens on another. They can just move their winnings from one game to a new game without having to cash out.

Maintaining non-security status

For PoQ to maintain their status as a non-security and avoid being in contravention of the Securities Act, there are a number of rules that they must follow. They have to maintain strict KYC and AML rules on their platform for account initiation and these rules must be applied to accounts on a regular basis.

The Quarters should be continuously available to gamers in unlimited quantities. Although the quantities should be unlimited, the price of the Quarters should remain fixed. The sold tokens should only be used for the purposes of accessing and interacting with games that are participating in PoQ rewards.

The rules also state that PoQ cannot use any funds generated from the Quarters to build the Quarters Platform. The platform has already been fully developed and should be functional and operational on its launch and before any Quarters are offered to gamers.

Positive for blockchain?

While many could view this as a positive sign for the blockchain community in the U.S, other crypto stakeholders are not entirely impressed with the “no action” notice. Marco Santori, President and Chief Legal Officer of Blockchain, expressed the view that the ruling was for “arcade tokens” and hence insinuating that it has no real bearing on actual cryptocurrencies.

10/ Congrats cryptoland, we have achieved no-action letter status for… arcade tokens.

— Marco Santori (@msantoriESQ) July 26, 2019

This “no action” notice is similar to one given to TurnKey Jet earlier this year. The U.S based travel company was also informed that it would need to follow rules similar to those issued to PoQ to avoid being classified as securities. The tokens cannot be transferred to external wallets and therefore cannot be used for online crypto trading.

These two cases show how the SEC views tokens and where they draw the line in terms of classifying tokens as securities or as utility tokens. The cases also show that all hope is not lost with the SEC and regulation could still be achieved in the future.