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We’re frustrated to share that the SEC recently sent us a Wells notice, which non-specifically alleges violations of securities law and alleged misrepresentations by the company. With this action, the SEC is continuing to indiscriminately assert that tokens are securities. While not specified in the notice, we believe its claims are targeting the listing and private sales of IMX in 2021. A Wells notice is an indication from the SEC that it is considering bringing a lawsuit against a company. It follows a spate of these notices from the SEC targeting some of the largest and most reputable actors in the space. Rest assured: it's business as usual for Immutable and we're going to continue doing what we do best - building products and services for games and players.
Regrettably, aggressive enforcement threats have become commonplace in our industry. The industry desperately wants clear guidelines for compliance, but instead startups are forced to spend millions of dollars in legal fees to even get off the ground. This has been no better said than by SEC Commissioner Hester Peirce: “Leaving crypto to be addressed in an endless series of misguided and overreaching cases has been and continues to be a consequential mistake.”
Under the current administration, the SEC has filed (and lost) a string of lawsuits, seeking to regulate crypto via enforcement rather than policy.
Last year, Ripple won a “landmark victory” where Judge Torres found that XRP was not a security. After publicly stating Ethereum was a commodity, the SEC secretly opened an investigation into ETH. They shut down this investigation after Consensys sued them to defend Ethereum’s ecosystem in June of this year. Last year, Grayscale sued the SEC to open the floodgates for institutional adoption of crypto. They won, with the court finding the SEC’s denial of Grayscale’s proposal "arbitrary and capricious.” In recent weeks we’ve seen the SEC’s overreach continue with the livelihoods and freedoms of musicians, artists and other content creators under threat in light of the SEC’s move against NFT platform OpenSea. With this latest move against Immutable, the SEC’s overreach has expanded into gaming. Additionally, we are aware of related inquiries, but no actual or proposed legal action, from the DOJ. Immutable, like many other companies in crypto, has spent millions of dollars in governance and legal fees in order to be compliant. We welcome regulatory clarity - but it appears that some elements of SEC do not want to engage in a constructive dialogue.
The regulatory void created by the SEC’s approach has left companies to speculate on what they have to do, and attempt to become compliant against a framework that is riven with ambiguity, uncertain in application, not fit for purpose and yet, aggressively enforced. In the words of Hester Peirce, we face a “crypto-obsessed commission”. The SEC’s conduct has even been called out by the courts, as seen in the DEBT Box case.
All of this is unfairly hindering companies trying to build real products. Immutable is striving hard to build the infrastructure necessary to onboard billions of people onto Web3 via games. Since 2018, we have built a platform that has allowed game developers to build a better experience for millions of players. These are products that genuinely improve the experience of games and developers in an industry that spends $110B+ per year on real in-game items. It is important to get this right, the stakes are not small.
We are confident in our position and welcome a robust conversation to clarify facts. Instead, we received an accelerated timeline before the U.S. election, hours after we reached out.
Prior to the issuance of a Wells notice, there are often multiple months of interviews and conversations between company counsel and the SEC, so the SEC can fully understand the situation. Instead, in our very first interaction with the SEC, we were told a Wells notice would be issued to the company within the week. We then received it within hours. What’s more, the notice simply cited statutory provisions and contained limited meaningful detail about the nature of the investigation - we counted fewer than 20 words of material explanation.
This sudden Wells notice arrived shortly before the U.S. election. It does not take an astute observer to connect the timing. To manufacture a case on a listing that occurred in 2021, with practically no direct communication with the company, is precisely the reason the industry is so skeptical of any attempts from this SEC to argue it is attempting to provide clarity. Despite the SEC indiscriminately claiming that tokens across the industry are securities, we are confident the IMX token is not. If the manner of providing clarity to the industry is by winning against this attempted regulation by enforcement, then Immutable is happy to do so.
What’s more, we’ve seen continuous escalation from the SEC in the types of accusations it’s bringing as part of its latest tactic to find traction against the crypto industry. For Immutable, they’ve stepped up from repeatedly failing section 5 accusations to insufficiently researched and factually incorrect allegations of fraudulent misrepresentations and inaccuracies, all to gain more leverage after a series of losses against the industry. They’ve also sprayed-and-prayed by issuing Wells notices to our CEO and to the Digital Worlds Foundation, the parent entity of the issuer of the IMX token.
In a ten minute call after they had already issued us with a Wells notice, the SEC alleged a 2021 blog post stating a pre-launch investment made in the IMX token at a price of $0.10 ($10 pre 100:1 split) was inaccurate, and implied there was no exchange of value between the parties. Once again, the SEC is incorrect: there was real consideration, which they would have learned through a constructive dialogue with the company.
Immutable is a mission-driven company: our goal is to create a better set of property rights for gaming, and to fundamentally align the incentives of players and developers using Web3. We welcome regulation that is fair and well thought-out, and we have been actively engaged in industry forums to drive these outcomes.
We have been building Immutable since 2018. We are not here to play short-term games: Immutable remains well capitalized with a large war-chest to build for the future of gaming. SEC overreach and political calendars won't stop us; they won’t stop the industry; they won’t stop the inevitability of digital property rights.
A way forward
The way forward for the SEC to engage with crypto is clear. It has been repeated by companies, lawyers, and internal dissenting commissioners for the last four years. Engage with the industry. Create clear and fit-for-purpose industry rules and regulatory guidelines, and we will follow them. Use fair process, and we will adhere to it. At the absolute minimum, have a real conversation before firing from the hip.
Until that happens, we will fight for builders, creators, gamers, and digital ownership.
And we will keep building.
