Two SEC commissioners oppose SEC’s enforcement action on NFTs.

2 SEC commissioners oppose SEC's enforcement action on NFTs.

Author: Katherine Ross, Blockworks; Translation: Song Xue, LianGuai

SEC Commissioners Mark Uyeda and Hester Peirce Disagree with SEC’s Enforcement of NFT Sales as Securities

On Monday, the U.S. Securities and Exchange Commission (SEC) filed charges against ImLianGuaict Theory, a previously relatively unknown issuer of NFTs, alleging that the NFTs were unregistered securities. The SEC stated that the issuance raised approximately $30 million.

Pierce and Uyeda disagree with these charges, both commissioners stated that the related NFT sales do not meet the Howey Test, and added that the enforcement action puts the SEC into unfamiliar territory as it marks the first enforcement action against NFT issuers.

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The SEC stated that ImLianGuaict Theory was ordered to pay a $6.1 million fine and agreed to cease its ongoing business activities.

The company launched its NFTs in the fall of 2021, claiming to “encourage potential investors” to view the purchase of its Founder’s Key NFT as an investment in the business, which prompted the SEC’s action.

Both Pierce and Uyeda stated that adult Americans should be able to manage their financial affairs in ways they deem appropriate, but they understand the SEC’s intentions.

In a joint statement, they said, “We do not routinely take enforcement actions against people who sell watches, paintings, or collectibles, and vaguely promise to build brands that increase the resale value of these tangible items.”

The SEC is concerned that NFT buyers do not understand where their funds are going and has raised “legitimate concerns,” although Peirce and Uyeda both stated that “this is not sufficient basis for us to bring this matter within our jurisdiction.”

The two commissioners raised approximately nine questions regarding the enforcement action and the broader NFT landscape.

They stated that NFTs are not a single-use asset class and that different NFTs have multiple use cases. Therefore, the SEC may need new legislative classifications to determine how securities laws apply to asset issuances and sales.

Since the SEC ordered ImLianGuaict Theory to destroy its owned NFTs, the commissioners are curious about the precedent this sets.

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