The Securities and Exchange Commission has charged Los Angeles-based entertainment company Impact Theory. The charges are on the grounds of conducting an illegal securities offering of non-fungible tokens that raised approximately $30 million.
According to the SEC, Impact Theory sold three tiers of NFTs called “Founder’s Keys” to the public from October to December 2021, leading buyers to view the NFTs as an investment in Impact Theory’s business success. However, the company failed to register the NFTs as securities or file the required disclosures as part of the sale.
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SEC ordered Impact Theory to pay $6 million
The SEC ordered Impact Theory to pay over $6 million in penalties and ill-gotten gains disgorgement for the unregistered securities sale. The company will also set up a fund to return money to the founder’s key buyers.
This marks the SEC’s first enforcement action involving NFTs, which the agency argues were investment contracts and therefore securities in this case. The precedent has alarmed some industry experts, who warn that overly broad security designations could hamper NFT innovation.
Two SEC commissioners dissented against the decision, arguing insufficient evidence was provided to classify the Founder’s Keys as securities. However, the SEC maintains it will continue policing illegal crypto securities offerings like those involving Impact Theory’s NFT sale.
The high-profile action puts other NFT issuers on alert to ensure offerings comply with regulations or risk facing SEC crackdowns. As the crypto industry expands, more enforcement is expected around projects operating in legal gray areas.