Big Negative News for NFTs? SEC Regulates NFTs for the First Time in History

Big news for NFTs SEC regulates NFTs for the first time.

Author: Cookie, Source: BlockBeats

ImLianGuaict Theory’s “Founder’s Keys” is the first NFT project in history to be accused by the SEC of “unregistered securities”.

On August 28th, the U.S. Securities and Exchange Commission (SEC) accused ImLianGuaict Theory, LLC, a media and entertainment company based in Los Angeles, of conducting unregistered cryptocurrency securities issuance in the form of NFTs.

In response to the SEC’s accusations, ImLianGuaict Theory, LLC accepted a cease-and-desist order without admitting or denying the SEC’s findings. The order found that it violated the registration provisions of the 1933 Securities Act and ordered it to pay a total of over $6.1 million in illegal gains, pre-judgment interest, and civil penalties. The illegal gains will be returned to the affected investors through the establishment of a fair fund. In addition, ImLianGuaict Theory agreed to destroy all of their “Founder’s Keys” NFTs, publish an announcement about the cease-and-desist order on their official website and social media, and waive any royalty income that may be obtained from future secondary market transactions involving the “Founder’s Keys”.

Why was “Founder’s Keys” accused of “unregistered securities”?

The SEC determined that “Founder’s Keys” NFTs were offered and sold as investment contracts and securities based on the following facts and circumstances:

From October 13, 2021, to December 6, 2021, ImLianGuaict Theory raised approximately $29.9 million from hundreds of investors, including investors from across the United States, through the issuance of the “Founder’s Keys” NFT series.

The series was divided into three equity levels, “Legendary,” “Heroic,” and “Relentless,” and sold at different prices.

Prior to the issuance of the “Founder’s Keys,” ImLianGuaict Theory held several voice livestreams on Discord, followed by uploading recordings of these livestreams to their own Discord channel and sharing information about these publicly accessible recordings on their official website and social media. ImLianGuaict Theory also released recordings of other speaking events on YouTube and participated in public interviews on news media and social media to promote the “Founder’s Keys”.

Through these public promotions, ImLianGuaict Theory attracted potential investors to view the purchase of “Founder’s Keys” NFTs as an investment in their business and stated that investors would profit from purchasing “Founder’s Keys” NFTs if ImLianGuaict Theory’s efforts were successful. In particular, ImLianGuaict Theory emphasized that the company is “working hard to build the next Disney” and that if successful, the purchase of “Founder’s Keys” NFTs would bring “great value” to buyers, with future value far exceeding their purchase price. ImLianGuaict Theory expressed this point in the following ways:

“If you pay 1.5 (ETH), you will earn more. So no one will just take a look at this project and say, ‘Sorry, I think this thing has no value.’ I am very bullish about this, and I will do everything I can to ensure that what I am saying is correct.”

“This project is called ImLianGuaict Theory ‘Founder’s Keys’, and we like to say that it opens up the future of everything we are currently doing as a company… When I take a serious look at NFTs, I realize that what it can do for you is reward your community. For someone like me who is trying to build the next Disney, what you need is a thriving community. Therefore, we believe this is a huge way for our community to derive immense value from what we are building.”

“Now, as we are building this IP, imagine if you had the opportunity to participate in Disney when they made ‘Steamboat Willie’, that’s how we view ourselves as legendary. Frankly, that’s also how we view our first NFT series.”

ImLianGuaict Theory also emphasizes that the company’s efforts will achieve the values they claim. ImLianGuaict Theory will use the proceeds from the sales for “development”, “bringing more talent to the team”, “creating more projects”, and:

“But of course, I will make sure we do something that delivers astonishing value by any reasonable standard.”

“The key information I want you to have is that in the next 18 to 24 months, a lot of cool things will happen, which ultimately is just a small part of what will happen in the next five years. The reason we only sell in the hype of the next 18 to 24 months is that I want you to get 90% of the economic value of everything we will do in the longer future years. The only way to do that is to sell and price based on what we do in the short term, which will allow you to experience enormous gains.”

“We will use this money for ‘development’, ‘bringing more talent to the team’, and ‘creating more projects’, ensuring that we provide amazing value. Until people laugh and can’t believe they previously consumed what they did – you know – all that value is available to anyone who holds any grade of NFT – until there is that feeling – we’ve been injecting value into NFTs all along.”

In addition, ImLianGuaict Theory openly shares the belief that the wealth of the buyers of “Founder’s Keys” NFTs, ImLianGuaict Theory, and the founders of ImLianGuaict Theory are tied together:

“Our goal is to ensure that as ImLianGuaict Theory becomes richer, as the founders of ImLianGuaict Theory become richer, as the members of ImLianGuaict Theory become richer, you, the NFT buyers, also become richer. That’s why we are so actively supporting NFTs.”

“NFTs are a mechanism that allows communities to derive economic value from the development of companies they support.”

All these statements have led many buyers of “Founder’s Keys” NFTs to express in their Discord that they believe purchasing “Founder’s Keys” NFTs is an investment in ImLianGuaict Theory, and as ImLianGuaict Theory progresses in the development of its projects, it will bring added value to “Founder’s Keys” NFTs.

“It’s like being invited to invest in a company that is in the midst of a vigorous Series A financing.”

“It’s like investing $10,000 with an upside potential of $300,000, but with minimal risk.”

“Everyone here is a trailblazer! Buying ‘Founder’s Keys’ NFT is like investing in Disney, Call of Duty, and YouTube all at once.”

“There has never been such an astonishing risk-return ratio for an investment. You are not just investing in ‘Founder’s Keys’ NFT or PNG images, but in the ImLianGuaict Theory team. It’s an unprecedented opportunity, like handing $20 to Mark Zuckerberg in a dorm room.”

Experienced NFT players would probably sigh with resignation after reading the above content – promises to build a brand with the sales revenue from issuing NFTs, NFTs benefiting the community from the team’s efforts, building the next Disney, and buying NFTs being like investing in a startup or emerging brand… It’s not about how many NFT projects have said these things, but how many NFT projects have not said these things…

Will NFTs face significant headwinds?

Two SEC commissioners, Hester M. Peirce and Mark T. Uyeda, have raised objections to the SEC’s first-ever enforcement action against NFTs, partly due to disagreement with the application of the Howey Test. These commissioners emphasize that NFTs are not company stocks and do not generate any type of dividends for buyers. In addition, ImLianGuaict Theory implemented a buyback plan in December 2021 and August 2022, repurchasing a total of 2,936 “Founder’s Keys” NFTs purchased on the primary or secondary market, returning approximately $7.7 million worth of ETH to investors. Even if NFT sales here fully comply with the Howey Test, is it really worth pursuing enforcement action when the project team is willing to continue buying back the NFTs from buyers?

@Orlando_btc believes that there is a reason why the SEC allowed ImLianGuaict Theory to settle without admitting or denying the allegations. Compared to FTs, NFTs are more like collectibles such as Pokémon cards, sneakers, or watches, which may have stronger arguments in terms of membership rights, consumability, and utility, and will still bring many complex issues related to securities laws.

ImLianGuaict Theory is a company primarily focused on Crypto. They have a mainstream brand that is completely separate from Crypto/NFT, so they may be willing to pay hefty fines, not admit wrongdoing, and then leave. This is where the SEC is smart – choosing a defendant without much resistance, avoiding the challenge of tackling hard nuts like Yuga Labs, and easily claiming victory in regulating NFTs. But it can also be said that the SEC is finally starting to take action against NFTs, and Yuga Labs may gradually encounter troubles similar to Coinbase.

For most NFT teams, please stop promoting projects like selling equity. Although many lawyers may have already made such suggestions to the NFT project community, this advice may still be news to many NFT project founders.

Although this may be the biggest NFT news of the year, the market currently has no reaction… There is not much panic in the short term, and not so optimistic in the long term. Commissioners Hester M. Peirce and Mark T. Uyeda raised 9 questions about NFTs in their dissenting statement, and the road to NFT regulation and compliance has just begun.


ImLianGuaict Theory founder @TomBilyeu has tweeted announcing that the company has reached a settlement with the SEC and is happy to end the investigation from the SEC so that they can focus on the future of their business and community. They even gave a shout-out to their own NFT project “Kyzen”. Tom seems to have something in common with Su Zhu – they are both eternal optimists.

The SEC’s shotgun has finally targeted NFTs. @garyvee, @frankdegods, and other big shots are probably going to sneeze non-stop today…

We will continue to update Blocking; if you have any questions or suggestions, please contact us!


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