The U.S. Securities and Exchange Commission (SEC) recently announced its first-ever NFT-related enforcement action against Los Angeles-based media and entertainment firm Impact Theory. The securities regulator charged the firm with raising millions of dollars through an unregistered offering in the form of crypto securities in 2021.
According to a recent press release by the SEC, Impact Theory was sued for raising roughly $30 million from hundreds of investors in the United States and around the globe. The SEC stated that between October and December 2021, the entertainment firm offered three versions of its ‘Founder’s Keys’ NFTs, namely Legendary, Heroic, and Relentless.
Impact Theory allegedly encouraged potential investors to consider the Founder Keys as an investment into the company. The company reportedly promised a significant return on investment for those who purchased the NFTs. The SEC found that the NFTs offered and sold to Impact Theory’s investors were investment contracts and therefore qualified as securities.
Speaking on the lawsuit against Impact Theory, SEC’s Director of New York Regional Office Antonia Apps stated:
“Absent a valid exemption, offerings of securities, in whatever form, 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.”
The SEC revealed that Impact Theory agreed to a cease-and-desist order which acknowledged that it violated registration provisions of the Securities Act. Without admitting or denying the securities regulator’s findings, the entertainment firm agreed to pay a total of $6.1 million, which included disgorgement, prejudgment interest, and a civil penalty.
As part of the settlement, Impact Theory would also be required to destroy all the Founder’s Keys in its possession and eliminate any royalties that it may receive from secondary sales of the NFTs. the company would also have to set up a fund to return the funds raised through the sale of the NFTs.
