When it rains, it pours NFTs face regulatory crackdown amid the crypto winter.

Author: Cookie

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

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

Facing the SEC’s allegations, ImLianGuaict Theory, LLC accepted a prohibition order without admitting or denying the findings of the SEC’s investigation. The prohibition order found that it violated the registration provisions of the Securities Act of 1933 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 investors who suffered losses through the establishment of a fair fund. In addition, ImLianGuaict Theory agreed to destroy all of their “Founder’s Keys” NFTs and publish a notice about the prohibition order on their official website and social media, waiving any royalties that may be obtained from future secondary market transactions involving “Founder’s Keys”.

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

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

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.

At the time of the sale, 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, and then uploaded recordings of these livestreams to their own Discord channel, sharing information about these publicly available recordings on their official website and social media. ImLianGuaict Theory also posted recordings of other speaking events on YouTube and participated in public interviews on news media and social media to promote “Founder’s Keys”.

Through this public promotion, ImLianGuaict Theory attracted potential investors to consider the purchase of “Founder’s Keys” NFTs as an investment in their business and stated that investors would profit from buying “Founder’s Keys” NFTs if ImLianGuaict Theory’s efforts were successful. In particular, ImLianGuaict Theory emphasized that the company was striving to “build the next Disney” and that if successful, it would bring “enormous value” to the buyers of “Founder’s Keys” NFTs, with future value far exceeding their purchase price. ImLianGuaict Theory has made the following points to illustrate this:

“If you pay 1.5 (ETH), you will earn more. So no one will just take a look at this project and say, ‘Sorry, buddy, I think this thing is worthless.’ I am very bullish about this, and I will do everything I can to make sure what I say is right.”

“The project is called the ImLianGuaict Theory ‘Founder’s Keys,’ and we like to say that it opens the future of everything we are currently doing as a company… When I take NFT seriously, I realize that it can only 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 gain tremendous value from what we are building.”

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

ImLianGuaict Theory also emphasizes that the company’s efforts will realize these claimed values. ImLianGuaict Theory will use the proceeds from the sales for “development,” “bringing in more talent to join the team,” “creating more projects,” and:

“But of course, I will make sure we do something that can provide astonishing value to people according to any reasonable standard.”

“What I want you to know is that in the next 18 to 24 months, there will be a lot of cool things happening, which is ultimately only 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. The only way to do this is to sell and price based on what we will do in the short term, which will allow you to enjoy huge gains.”

“We will use this money for ‘development,’ ‘bringing in more talent to join the team,’ and ‘creating more projects’ to ensure we provide amazing value. Until people laugh and can’t believe they consumed before – you know – regardless of the grade of NFT they hold, they will get all these values – until there is such a feeling – we have been injecting value into NFT.”

In addition, ImLianGuaict Theory openly shares the view that the wealth of the buyers of the “Founder’s Keys” NFT, ImLianGuaict Theory, and the founder of ImLianGuaict Theory are all tied together:

“Our goal is to ensure that as ImLianGuaict Theory becomes richer, as the founder of ImLianGuaict Theory becomes richer, as our members in ImLianGuaict Theory become richer, you, the NFT buyers, also become richer. That’s why we support NFT so actively.”

“NFT is a mechanism that allows the community to gain economic value from the development of the companies they support.”

These various remarks have led many buyers of “Founder’s Keys” NFT to express in their Discord that they believe purchasing “Founder’s Keys” NFT is an investment in ImLianGuaict Theory company, and as ImLianGuaict Theory gradually advances its project development, it will bring appreciation to “Founder’s Keys” NFT:

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

“It’s like investing $10,000 with the potential for $300,000 upside, with only a little risk.”

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

“There is currently no investment with such an amazing risk-return ratio. You are not investing in some ‘Founder’s Keys’ NFT or PNG images, but in the ImLianGuaict Theory team. This unprecedented opportunity is like handing $20 to Mark Zuckerberg in the dorm room.”

After reading the above content, veteran NFT players should feel helpless and bitter with a smile – “committing to build a brand with the sales revenue from issuing NFTs,” “NFT is a way for the community to benefit from the team’s efforts,” “building the next Disney,” “buying NFTs is like investing in a startup/emerging brand”… It’s not about how many NFT projects have said these things, but how many NFT projects haven’t said these things…

Will NFTs face significant headwinds?

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 a disagreement on the application of the Howey test. These two commissioners emphasized that NFTs are not company stocks and will not generate any type of dividends for buyers. In addition, ImLianGuaict Theory formulated a buyback plan in December 2021 and August 2022, repurchasing a total of 2,936 “Founder’s Keys” NFTs purchased on the issuance or secondary market, returning approximately $7.7 million worth of ETH to investors. Even if the NFT sales here fully comply with the Howey test, it is feasible for the project party to continue repurchasing the buyers’ NFTs. Is it really worth executing such enforcement actions?

@Orlando_btc believes that there is a reason why the SEC reached a settlement with ImLianGuaict Theory without admitting or denying the allegations. Compared to FT, NFTs are more like collectibles such as Pokémon cards, sneakers, or watches, so there may be stronger arguments in terms of membership rights, consumption, and utility, which will still bring many complex issues related to securities law.

ImLianGuaict Theory is a crypto-focused company. They have a mainstream brand that is completely separate from Crypto/NFT, so they may be willing to pay hefty fines, not admitting to doing anything wrong, and then leave. This is where the SEC is smart – choosing a defendant with no strong resistance motivation, avoiding nibbling on hard bones like Yuga Labs, and easily claiming victory in regulating NFTs. But it can also be said that the SEC has finally started targeting NFTs, and Yuga Labs may gradually encounter troubles like Coinbase.

For most NFT teams, please stop promoting projects like selling equity. Although many lawyers may have already advised NFT project founders with such suggestions, it may still be news to many NFT project founders.

Although this may be the biggest NFT news this 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.


Founder of ImLianGuaict Theory @TomBilyeu tweeted announcing that the company has reached a settlement with the SEC, expressing happiness to end the investigation from the SEC in order to focus on the future of the business and community, and even gave a wave of advertisements to their own NFT project “Kyzen”. Tom seems to have something in common with Su Zhu, both eternal optimists.

The SEC has finally set its sights on NFTs, @garyvee, @frankdegods, and other big shots are probably going to have a lot to say today…

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