SEC charges Impact Theory for unregistered offering of NFTs

I disagree.

A few centuries of experience make it pretty clear that there's a spectrum between highly regulated markets and unregulated markets. The highly regulated markets are a social good and beloved by both investors and people running actual decent businesses, because they enable effective matching between spare capital and the places where it can be effectively deployed. So I think it's great that most investors feel safe enough to invest in things. It makes the world better.

Think of it like the market for food. You can walk into pretty much any store in the US, buy pretty much any packaged food item, and safely eat it. Is it bad that you aren't applying your whole intellect to decide whether that muffin is safe? I'd say no, it's in fact good that you don't have to think about it. But that's only enabled by some pretty intense regulation on food.

Some would argue that it's interfering in the marketplace to keep people from selling shoddy discount food, and that we should just let the invisible hand work it out. That people "wailing" when they start throwing up is just them being crybabies, and that they should caveat emptor harder if they don't like blood in their stool.

But I think free market fundamentalists like that are deranged. I think markets exist to help fulfill human purposes, and that we should minimize the extent to which scammers, jerks, and monsters can parasitize them. And I think that for all the hue and cry about "innovation" in the cryptowhatever space, I've seen very little that's actually a significant socially positive improvement. In contrast, over the same period that Bitcoin has done approximately nothing useful, we've seen things from M-Pesa to Venmo actually serve millions and millions on a regular basis.

No, my argument is that the performance of the show is not directly linked to the price of the cards, among other things. LBC did not have continuing returns after the announcement that they were folding, and the theoretical use of the coins outside of investing is gone with the company. There's also the fact that there is no contract or common enterprise between purchasers of the cards and the makers of the Pokemon television series.

LBRY had other functions that made the coins look more like securities. For example, they used LBC as security for debt, they promoted it as an investment opportunity, they acknowledged its growth aligned with their company and they encouraged people to hold on to the coins so that they would appreciate in value despite new issuances. The entirety of the value of the coin was based on the performance of the company.

> the court explicitly stated that just because some people buy the cards for consumptive use doesn’t mean they all do.

Sure. Most people buy the cards for consumptive use, though. It's not a small number. Some people do invest in them as collectibles, but that doesn't make them a security.

> if some group were selling the same exact type of trading cards in the form of NFTs, and creating Telegram channels to promote them, creating all kinds of episodes featuring those characters, are they a “common enterprise?"

Do you mean the group that made them, sold them and promoted them? Sure - if a group of people made some products, marketed and sold them together then they would likely be acting in common enterprise. It could be a partnership, especially if they pooled their sales. That's not really what is happening with Pokemon cards, though. I'm not arguing that The Pokemon Company or Nintendo can't issue securities, I'm just saying the products they make and sell for consumptive purposes are not in themselves securities.

https://www.artnews.com/art-news/market/new-u-s-anti-money-l...

https://www.cnn.com/2020/07/29/business/art-money-laundering...

I am not sure I buy that argument about the original sales of securiries, and the SEC and judge in the court might not either. In fact, the LBRY and Ripple cases both have the judges saying secondary sales later on are not securities transactions in the crypto case also, but the issue is whether the original ones were.

Because the nostalgia is only widespread BECAUSE of the efforts of Pokemon to promote their IP, including getting the TV show syndicated, telling the kids to “gotta catch en all”, so now when the kids grew up, they have nostalgia. And also the cards (some of which were explicitly bought for investment purposes and their rarity, like the rare / limited edition charizard or the rare Yu Gi Oh Exodia combination etc) are in circulation through an “ICO” - an initial card offering and subsequent offerings haha. At the time they were conducted, the “investors” were totally relying on the efforts of the IP holders to promote the cards and make the rare ones worth something, or combinations or collections worth something. So at that time they might have been buying an investment contract. Again, I am simply applying the SEC’s currently MADE arguments in the LBRY and Ripple cases, to trading cards!

By analogy, if a crypto company today sells NFTs with different properties and emphasizes their use only in battle, yet also has rare special edition NFTs, promotes them online for years through Telegram channels and metaverse ganes etc. then you’re claiming the SEC cannot prove any of those rare NFTs were purchased relying on the efforts of the promoter to make the game’s network effect grow to such an extent that it would increase the demand for the rare NFTs, even after the promotion efforts ended. The form of whether it’s a trading card or crypto shouldn’t matter, only the facts and circumstances matter.

And if a new TMNT movie comes out then sure, you could again claim that all the action figures and cards being sold are for consumptive use only. But the LBRY case explicitly said that there could have been people buying it for INVESTMENT purposes and therefore it sets a scary precedent for the crypto industry, that, if applied to those industries would make Pokemon and Yu Gi Oh cards just as much securities sales for that same reason. But SEC didnt take them to court or make arguments like that, because it exercised its discretion to not bring suit. That’s what government agencies do. When Obama said he would direct ICE to deprioritize DACA cases, that’s what he was talking about. Or when police see a Police Benevolent Association card for a minor offense. The government selectively enforcing things is common.

> Does the Pokemon Company do that?

You mean the company that puts the phrase “gotta catch em all!” everywhere including its shows and jingles? It certainly encourages “collecting them all”. This is what happens when you do:

https://www.usatoday.com/story/tech/gaming/2016/07/23/we-fou...

> I didn’t say it did

Hmm, I thought you did, so I addressed it:

> LBRY had other functions that made the coins look more like securities. For example, they used LBC as security for debt

======= DIFFERENT QUESTIONS

Just out of curiosity, if you still think the original sales are not securities, would you also be just as optimistic with regard to allowing the people to play games and do battles on a smart contract to win actual ETH? Would this violate the FTC’s restrictions on lotteries? Would you say it is a lottery because there is an element of chance when you get a random card? Or a game of skill because a karebo used properly can defeat a blue eyes white dragon? And is a company putting up prize money on the blockchain enough to satisfy the bonding requirements if it is a contest / game of skill instead of a game of chance?

https://www.raven5.com/contest-and-sweepstakes-registration-...

And how about deploying a smart contract allowing people to wager ETH and then have it go to one or more winners based on some on-chain battles or rules which are primarily based on skill? (Nevermind that an AI could trivially try all the combinations to give an unfair advantage).

https://www.letsgambleusa.com/laws/