The Founders of Unikrn, Rahul Sood and Karl Flores, are facing legal implications concerning the unlawfulness of their ICO and the way they conducted the raising of funds for their eSports gambling project. They accumulated a 30m USD investment from their ICO after registering the “offering” with the U.S. Securities and Exchange Commission as a “SAFT” (Simple Agreement for Future Tokens), under Regulation D, section 506(c).

However, a 506(c) offering is available only for accredited investors. This dictates that the company offering the investment opportunity must vet their investor’s finances and KYC. Unikrn have taken no such action and didn’t declare the registration of their ICO under 506(c) anywhere and accepted the most basic of information from their investors when purchasing during the ICO. This is in direct breach of the ruling.

The federal exemption ruling dictates that “issuers may broadly solicit and generally advertise an offering, provided that:

  • The issuer takes reasonable steps to verify purchasers’ accredited investor status and certain other conditions in Regulation D are satisfied.

Purchasers in a Rule 506(c) offering receive “restricted securities”, which can be defined as: previously-issued securities held by security holders that are not freely tradable.

The Founders persistently lobbied that UKG was strictly for utility but a) offered the tokens to accredited investors pre-ICO for profit (15m USD) and not utility and b) had no utility in place for the token at ICO. Furthermore, UKG tokens bear the markings of the criteria required to fulfil the “Howey Test”, therefore establishing them as a security and cementing the breach of the federal exemption.