The US Securities and Exchange Commission (SEC) has charged Impact Theory, a media and entertainment company, with conducting unregistered securities sales by selling non-fungible tokens (NFTs) to investors between October and December 2021. Impact Theory, known for pro ducing entertainment and educational content, including podcasts, allegedly raised nearly $30 million through the sale of its NFTs, called Founder's Keys, which were offered in three tiers.
According to the SEC, Impact Theory marketed the purchase of Founder's Keys as an investment in its business, emphasizing its goal to become the next Disney and deliver significant value to investors. The SEC determined that these NFTs qualify as investment contracts and, cons Quently, securities . Impact Theory violated the Securities Act of 1933 by selling them without proper registration, leading to the issuance of a cease and desist order, which the company agreed to.
As part of the SEC's order, Impact Theory has been directed to pay over $6.1 million in disgorgement, prejudice interest, and civil penalties. Furthermore, a fund will be established to refund investors who purchased Founder's Keys NFTs. The company will also destroy all Founder's Keys it owns or controls, publish notices on its website and social media platforms, and will not receive royalties from future secondary market NFT sales.
Impact Theory's Founder's Keys NFTs had been trading, with one of the “legendary” (top-tier) founder’s keys recently selling for $1,468. Despite being one of 10 sales in the past week, there was no immediate response to inquiries from Impact Theory regarding the SEC's action.
Notably, this is the SEC's first enforcement action related to NFTs. However, SEC Commissioners Hester Peirce and Mark Uyeda dissented from the action, arguing that NFTs should not be classified as investment contracts. They highlighted that NFTs differ from traditional securities as they do not yield dividends and raised concerns about the potential overreach of the SEC into the NFT market. They called for a more thorough examination of NFT-related matters before pursuing further regulatory actions.
