SEC is preparing to sue Immutable for selling the IMX token

What’s new? The team of the Immutable gaming platform on the Ethereum blockchain has reported that it received a Wells notice from the US Securities and Exchange Commission (SEC). This is the paper the regulator sends to a company when a violation of securities laws is discovered, signaling a willingness to go to court. The claims relate to the Immutable (IMX) native token with a capitalization of $1,96 billion.

Source: X.com

What else is known? Similar letters have been sent to Immutable CEO James Ferguson and the Digital Worlds Foundation, a non-profit organization supporting the platform ecosystem that was involved in the launch of IMX.

According to Immutable’s team, there are few details in the SEC’s notice, but the company itself believes the allegations are related to an initial token offering (ICO) in 2021. At the time, the company said it raised $12,5 million through an IMX token sale on the CoinList launchpad. This platform allows traders to access new cryptocurrencies before they start being listed on exchanges.

“Despite the SEC indiscriminately claiming that tokens across the industry are securities, we are confident the IMX token is not. The notice simply cited statutory provisions and contained limited meaningful detail about the nature of the investigation,” the company said.

In addition, the SEC accused Immutable of providing false information about the coin’s security. We are talking about, among other things, the investments preceding the launch of IMX, which allegedly did not actually exist. In turn, the company all in the same 2021 in its blog described receiving investments from the venture capital arm of crypto exchange HTX (formerly Huobi Ventures).

Immutable also noted that the SEC was clearly in a hurry to file the notice before the presidential election, which could result in a change in the composition of the commission, as it sent it hours after its first interaction with the gaming platform’s team.

This is the first known case of the SEC threatening enforcement action against a blockchain gaming company, though it has sued numerous crypto firms over the past few years.

“With this latest move against Immutable, the SEC’s overreach has expanded into gaming,” the developers emphasized.

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According to the official website, the ERC-20-issued IMX token can be used for certain transactions on the Ethereum-based Layer 2 (L2) networks created by Immutable: the Immutable X and Immutable zkEVM. The token can also be staked for rewards and used in platform governance votes, for example, deciding whether to award grants to certain game developers.

Immutable offers games such as Gods Unchained and Guild of Guardians, and has also partnered with Ubisoft Studios to develop a collaborative blockchain game.

In total, the company, which launched in 2018, has raised around $300 million in multiple funding rounds, with investors including Coinbase Ventures and Animoca Brands. The latest round of fundraising took place in 2023.

According to the leading crypto market data aggregator CoinGecko, IMX is the largest coin by capitalization in the blockchain games with earning potential (GameFi) sector, ranking 51st overall.

At the time of writing, IMX is trading at $1,17, having lost 13,9% overnight on the back of negative news. The weekly drop was 18,6%, while the asset has gained 85,3% over the past 12 months.

Immutable said it was prepared to defend itself in court, noting a large stockpile of funds.

“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. All of this is unfairly hindering companies trying to build real products,” Immutable’s appeal emphasizes.

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The largest similar incident is the SEC’s multi-year legal battle against Ripple. The regulator sued the fintech company back in 2020, accusing it of violating securities laws during initial sales of the XRP token for $1,3 billion.

Last year, the court only partially sided with Ripple, finding no violation for retail sales. For institutional transactions, the company must pay a fine of $125 million. However, the regulator was not satisfied with this outcome and filed an appeal in October this year.

In early October, the Crypto.com exchange received a Wells notice from the SEC. Without waiting for enforcement action, the exchange itself sued the regulator, accusing it of exceeding its authority and violating the Administrative Procedures Act.

In general, receiving such a notice does not always guarantee further legal action. Stablecoin issuer Paxos managed to settle the claims before the lawsuit was filed, but to do so it had to stop issuing BUSD coins under the Binance brand.