First: SEC Charges NFT Issuer Impact Theory with Pursuing an Unregistered Security Offering, Company Settles Charges

The Securities and Exchange Commission (SEC) has filed charges against Impact Theory and the issuance of an NFT or non-fungible token that was deemed to be an unregistered offering of crypto asset securities. This is the first NFT offering that the SEC has targeted for an enforcement action. In the past, NFTs have largely evaded the ire of the SEC as these digital assets have been viewed more as collectibles or unique individual digital assets.

Impact Theory has settled the charges with the SEC and agreed to a cease and desist order. As is typically in settlements, Impact Theory has not admitted nor denied the charges.

According to the SEC, in 2021, Impact Theory sold three tiers of NFTs, labeled Founder’s Keys, and called “Legendary,” “Heroic,” and “Relentless.” The SEC claims that Impact Theory said investors could profit from the purchases if “Impact Theory was successful in its efforts.” Impact Theory apparently raised $30 million in the sale of these NFTs.

The SEC’s order finds that the NFTs offered and sold to investors were investment contracts and, therefore, securities.

The complaint includes multiple quotes associated with the NFT issuance, including:

“This is like being offered to invest in a booming company when they’re Series A. Its like investing 10k with a 300k upside, for a small risk. Everyone here is an early adopter! Buying a founders key is Like investing in Disney, Call of Duty, and YouTube all at once.”

Antonia Apps, Director of the SEC’s New York Regional Office, said that absent a valid exemption, securities must be registered.

“Without registration, investors of all types are deprived of the protections afforded them by the robust disclosures and other safeguards long provided by our securities laws.”

Impact Theory will pay a combined total of over $6.1 million in disgorgement, prejudgment interest, and a civil penalty.

The order also establishes a Fair Fund to return monies that injured investors paid to purchase the NFTs.

Impact Theory has also agreed to destroy all Founder’s Keys in its possession or control, publish notice of the order on its websites and social media channels, and eliminate any royalty that Impact Theory might otherwise receive from future secondary market transactions involving the Founder’s Keys.

It was not immediately clear as to the impact of this enforcement action on the broader NFT market.



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