SEC Charges NFT Issuer For Offering Unregistered Securities!

SEC Logo
Spread financial intelligence

The U.S. Securities and Exchange Commission (SEC) took a firm stance against Impact Theory, LLC, a Los Angeles-based media and entertainment firm, accusing them of orchestrating an unauthorized public offering of crypto securities via non-fungible tokens (NFTs). The company managed to amass around $30 million from many investors from the U.S. and abroad. It was the SEC’s first enforcement action targeting the booming NFT segment.

The SEC’s documentation reveals that between October and December 2021, Impact Theory introduced three categories of NFTs, termed Founder’s Keys, labeled as “Legendary,” “Heroic,” and “Relentless.” The company positioned these NFTs as a direct investment opportunity, suggesting that investors could reap financial benefits if Impact Theory‘s endeavors bore fruit. The company even went as far as to claim they were on the path to becoming “the next Disney,” promising significant returns to those who held Founder’s Keys.

The SEC determined that these NFTs were, in essence, investment contracts and thus classified as securities. Consequently, Impact Theory‘s actions were in breach of federal securities regulations due to their unregistered and non-exempt public offering.

Antonia Apps, Director of the SEC’s New York Regional Office, emphasized the importance of registration, stating, “Any securities offering, regardless of its format, must be registered unless a valid exemption is in place. Without such registration, investors are left vulnerable, lacking the protections and transparency our securities laws have historically ensured.

While not conceding to the SEC’s allegations, Impact Theory has consented to a cease-and-desist order, acknowledging their breach of the Securities Act of 1933’s registration clauses. The company is now obligated to remit over $6.1 million, encompassing disgorgement, prejudgment interest, and a civil fine. Furthermore, a Fair Fund will be established to reimburse aggrieved investors. As part of the resolution, Impact Theory will obliterate all remaining Founder’s Keys, publicize the order across their digital platforms, and forgo any future royalties they might have garnered from secondary market transactions involving the NFTs.


Leave a Reply

Your email address will not be published. Required fields are marked *