The U.S. Securities and Exchange Commission (SEC) charged Impact Theory with an unregistered securities offering through the sale of non-fungible tokens.
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A Los Angeles-based company that produces entertainment and educational video content reportedly raised about $30 million through the sale of NFTs across three distinct lines under the umbrella brand Founder’s Keys.
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“Impact Theory urged potential investors to view the purchase of Founder’s Keys as an investment in the business, saying that investors would profit from their purchases if the company is successful in its endeavours.”
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According to the regulator, the firm sought to build a “next Disney,” which, if successful, would deliver “enormous value” to NFT buyers.
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The commission determined that the sold tokens were investment contracts and, therefore, Impact Theory violated federal securities laws.
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“Without an effective exemption for the offering of securities in any form, they must be registered. Without registration, investors of all kinds are deprived of the protections provided by proper disclosure and other safeguards long provided by law,” said Antonia Apps, head of the SEC’s New York regional office.
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The company pleaded to the charges, not admitting or denying the Commission’s findings. Impact Theory agreed to pay a total of $6.1 million in penalties and interest. The regulator’s order established a fund to compensate investors who bought the NFTs. The firm also agreed to destroy all tokens in its possession and to relinquish any royalties.
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“Commissioners Hester Peirce and Mark Uyeda criticized the regulator’s order. In their view, the regulator should have addressed a series of ‘serious questions’ before taking initial enforcement actions regarding NFTs. They contend that even if asset sales pass the Howey test, the SEC had no grounds to act in this case.”
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“We do not routinely pursue enforcement against people selling watches, paintings or collectibles alongside vague promises to build a brand and thereby lift the value of those tangible items,” said SEC officials.
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In April, SEC Chair Gary Gensler stated that all cryptocurrencies are investment contracts and must be registered with the agency.
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