Historic Moment US SEC Accuses NFTs of Being Securities (Full Text)

US SEC Accuses NFTs of Being Securities

Source: U.S. SEC; Translation: LianGuai0xJS

On August 28, 2023, the U.S. SEC filed a lawsuit against ImLianGuaict Theory, a media and entertainment company based in Los Angeles, for conducting unregistered offering of encrypted asset securities in the form of so-called NFTs. Through this offering, ImLianGuaict Theory raised approximately $30 million from hundreds of investors, including investors from across the United States.

According to the U.S. SEC’s order, from October to December 2021, ImLianGuaict Theory offered and sold NFTs, known as “Founder’s Keys,” in three different tiers: “Legendary,” “Heroic,” and “Relentless.” ImLianGuaict Theory encouraged potential investors to view the purchase of “Founder’s Keys” as an investment in the business, claiming that investors would profit from their purchases if ImLianGuaict Theory succeeded in its efforts. ImLianGuaict Theory emphasized its efforts to build the next Disney and promised “enormous value” to buyers of “Founder’s Keys.”

The U.S. SEC found that the NFTs offered and sold by ImLianGuaict Theory to investors were investment contracts and therefore securities. As a result, ImLianGuaict Theory violated federal securities laws by conducting an unregistered public offering and failing to exempt from registration requirements.

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“Securities must be registered regardless of the form of issuance, unless there is an applicable exemption,” said Antonia Apps, Director of the U.S. SEC’s New York Regional Office. “Without registration, investors of all types are deprived of the strong disclosures and other protections that our securities laws have long provided.”

Without admitting or denying the U.S. Securities and Exchange Commission’s findings, ImLianGuaict Theory agreed to cease the violations and consented to a cease-and-desist order. The U.S. SEC determined that ImLianGuaict Theory violated registration provisions of the Securities Act of 1933 and ordered ImLianGuaict Theory to pay a combined total of over $6.1 million in disgorgement of ill-gotten gains, prejudgment interest, and civil penalties. ImLianGuaict Theory was also ordered to establish a fair fund to refund the amounts paid by victimized investors for the purchase of NFTs. ImLianGuaict Theory agreed to destroy all “Founder’s Keys” it owns or controls and to post notice of the order on its website and social media channels, as well as to waive any royalties it may receive from future secondary market transactions involving “Founder’s Keys.”

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