In a significant development, the U.S. Securities and Exchange Commission (SEC) has taken its first enforcement action related to non-fungible tokens (NFTs), ruling that Impact Theory, a Los Angeles-based company, sold these digital collectibles as unregistered securities.
As a result, the SEC has mandated that Impact Theory compensate investors who participated in these NFT transactions, labeling them as illegal unregistered securities offerings.It’s important to note that the SEC’s action is specific to Impact Theory and does not imply that all NFTs are considered securities.
In this case, Impact Theory, a California media company, generated nearly $30 million by selling three tiers of NFT offerings that the SEC determined to be securities. The crux of the matter lies in Impact Theory’s promise to investors that they would profit from these NFTs due to their perceived “tremendous value,” as outlined in the SEC’s order.
The SEC’s statement highlights that Impact Theory actively encouraged potential investors to view the purchase of a Founder’s Key as an investment in the company, suggesting that they would reap rewards if Impact Theory succeeded in its endeavors.
As part of the settlement, Impact Theory has agreed to establish a fund aimed at reimbursing investors who acquired these NFTs and has committed to the destruction of any remaining NFTs in its possession. Additionally, the company will be subject to penalties totaling more than $6.1 million payable to federal regulators, as stipulated in the order. This enforcement action serves as a noteworthy precedent in the evolving regulatory landscape surrounding NFTs.