SEC Explains How Polygon (MATIC), Chiliz (CHZ), and Others Offered Securities

In a new court filing, the U.S. Securities and Exchange Commission (SEC) explains how Polygon (MATIC), Decentraland (MANA), Chiliz (CHZ), The Sandbox (SAND), and Terra Luna (LUNC) illegally offered securities.

In a recent court filing, the U.S. Securities and Exchange Commission (SEC) has outlined its case for why Polygon (MATIC), Decentraland (MANA), Chiliz (CHZ), The Sandbox (SAND), and Terra Luna (LUNC) have illegally offered securities.

According to the SEC, these projects have offered tokens that meet the legal definition of a security, based on the way they were marketed and sold to investors.

Specifically, the SEC alleges that these projects have offered tokens that were sold as investment contracts, which are defined as securities by the U.S. Supreme Court in Howey Co. v. SEC.

To determine whether a token is an investment contract, courts apply the Howey Test, which considers four factors: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) to be derived from the entrepreneurial or managerial efforts of others.

In its filing, the SEC argues that each of the tokens in question meets the Howey Test criteria. For example, the SEC alleges that Polygon’s founder, Sandeep Nailwal, made statements encouraging investors to view MATIC as an investment, and that these statements, along with other marketing materials, created a reasonable expectation of profits among investors.

The SEC’s filing comes in a case against ConsenSys, the company behind the MetaMask cryptocurrency wallet. The SEC is alleging that ConsenSys offered and sold illegal securities through its MetaMask Staking and Swaps platform.

In its filing, the SEC has listed a total of 9 tokens that were offered through ConsenSys’ products and that the regulator has convicted as securities. These tokens include MATIC, MANA, CHZ, SAND, LUNC, cUSDC, ACH, GRT, and BAL.

The regulator’s classification of these tokens as securities could have significant implications for the projects and their investors.

However, the market has reacted positively to the SEC’s filing, with Terra Luna Classic increasing by up to 6% following the disclosure. Other tokens flagged by the SEC have also shown resilience, with gains ranging from 1.2% to 4%.

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