On November 19, 2020, the U.S. Securities and Exchange Commission issued a no-action letter to IMVU, Inc in connection with the sale of its VCOIN token.

IMVU describes itself as the world’s largest avatar-based social platform with a global network of over seven million monthly active users. These users create 3D avatars to meet new friends, interact, and play games in virtual environments online and through IMVU’s app.

IMVU’s No-Action Letter Request to the SEC argued that VCOIN is not a “security” within the meaning of Section 2(a)(1) of the Securities Act of 1933 or Section 3(a)(10) of the Exchange Act and, therefore, that registration under the Securities Act is not required.  As we have reported before, the SEC determines the issue of whether there is a security under the longstanding Howey test.  Under Howey, a contract constitutes an investment contract that meets the definition of security if there is (i) an investment of money; (ii) in a common enterprise; (iii) with an expectation of profits; (iv) solely from the efforts of others (e.g., a promoter or third party), “regardless of whether the shares in the enterprise are evidenced by formal certificates or by nominal interest in the physical assets used by the enterprise.”  SEC v. Howey, 328 U.S. 293, 298 (1946).

In contending that the VCOIN was not a security, IMVU argued that no purchaser of VCOIN would reasonably expect profits or capital appreciation resulting from IMVU’s efforts.  It gave the following reasons for that conclusion:

  • Users will view VCOIN as a digital asset intended for consumptive use;
  • VCOIN will be immediately usable on the platform when sold;
  • IMVU will sell and repurchase VCOIN at a fixed price of $0.004 per VCOIN; and,
  • IMVU will implement controls to encourage VCOIN use and deter speculation.

The SEC explained that it reached it decision not to recommend an enforcement action if IMVU offers and sells VCOIN, without registration, for the following reasons:

  • 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.

IMVU’s press release states that “Based on the no-action letter, IMVU plans to sell VCOIN as a non-security. VCOIN enables users to buy, gift, earn and, for the first time, transfer a digital asset off the IMVU platform to convert it to fiat.”  Although KYC is not required to purchase and use VCOIN on IMVU’s platform, KYC will be required for users who want to transfer their VCOIN off the platform and convert it to fiat.  IMVU plans to launch VCOIN in January 2021.  No complicated crypto wallets will be required.

This is only the third time that the SEC has issued a no-action letter with respect to cryptocurrency.  The other two were for Turnkey Jet and Pocketful of Quarters (for an 8th grader who wanted to release tokens for her crypto gaming company).  In both of the situations, as distinct from for VCOIN, tokens were not permitted to be converted back into fiat currency.


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.