SEC Takes Aim at NFTs: Impact Theory Faces Allegations

• SEC alleges LA-based Impact Theory’s NFTs are unregistered securities.
• Impact Theory agrees to pay over $6 million in settlement.
• First significant enforcement action by SEC in the NFT space.

The SEC broadens its crypto scrutiny by targeting NFT offerings, marking a significant move against a media company for its unregistered securities claim.

Wall Street’s Watchful Eye on Crypto

On Monday, the US Securities and Exchange Commission (SEC) intensified its crackdown on cryptocurrency products. The regulator accused Impact Theory LLC, a media and entertainment firm from Los Angeles, of selling nonfungible tokens (NFTs) that should have been registered as securities.

Details of the Allegations

The SEC’s allegations center around Impact Theory raising approximately $30 million from numerous investors via its NFT offerings. According to the SEC, these offerings should have been duly registered with the agency. In light of these allegations, Impact Theory has agreed to settle the case by paying an amount exceeding $6 million. This marks a pivotal move by the SEC as it’s their first enforcement action directly targeting NFTs, reinforcing the agency’s stance on crypto products they deem as securities under their jurisdiction.

The NFT Offerings by Impact Theory

The SEC sheds light on Impact Theory’s sale of three tiers of NFTs named “Founder’s Keys.” The media company presented these NFTs as investments in their business, even drawing parallels to building “the next Disney.” They promised potential NFT holders tremendous value in return if the company were to succeed. However, the agency’s concerns were amplified when the NFTs were perceived to represent shares or stakes in the company’s success.

Dissenting Voices Within the SEC

Not all SEC commissioners were in agreement with the agency’s actions. Republican SEC Commissioners Hester Peirce and Mark Uyeda voiced their dissent, suggesting that the regulator might have misapplied a longstanding legal test in this instance. They emphasized that these NFTs did not equate to company shares nor provided dividends to their buyers.

Conclusion

As the lines between traditional securities and digital assets continue to blur, regulators like the SEC face challenges in navigating this evolving landscape. This recent action against Impact Theory underscores the agency’s intent to ensure compliance within the crypto domain, though opinions on their approach remain divided.