The U.S. Securities and Exchange Commission (SEC) has imposed a $6 million fine on a Los Angeles-based company for selling non-fungible tokens (NFTs) that were deemed to be unregistered securities. The enforcement action highlights the regulatory scrutiny surrounding NFTs, which are digital assets traded on blockchain platforms. This penalty underscores the importance of compliance with securities laws when conducting NFT transactions.
Impact Theory Settles with SEC for $6 Million Over Unregistered NFTs
Los Angeles-based media company Impact Theory has reached a settlement agreement with the U.S. Securities and Exchange Commission (SEC) after the regulatory body alleged that the company’s NFTs were unregistered securities. According to a press release by the SEC, Impact Theory has agreed to pay a total of $6 million in settlement and destroy all the Founder’s Key NFTs.
The Founder’s Key collection, which is still live on Opensea as of midday on Monday, has a floor price of 0.039 Ethereum, equivalent to approximately $64. Since its launch, the collection has generated a total volume of $5.4 million on Opensea. Impact Theory, co-founded by entrepreneur and social media influencer Tom Bilyeu, has faced significant consequences due to the SEC’s allegations.
The SEC announced on Monday that Impact Theory raised approximately $30 million from a diverse group of investors, some of whom are based in the U.S. The allegations against Impact Theory claim that between October and December 2021, the company introduced and traded three tiers of unique NFTs called Founder’s Keys. These NFTs were labeled as “Legendary,” “Heroic,” and “Relentless.” The SEC’s findings suggest that Impact Theory actively promoted these NFTs as a direct investment opportunity, comparing potential returns to the success of major entertainment conglomerates like Disney.
Furthermore, the SEC contends that these NFTs are security investment contracts and, therefore, Impact Theory violated the Securities Act of 1933 by offering unregistered securities. In response to the SEC’s allegations, Impact Theory has agreed to a cease-and-desist order without admitting or disputing the charges. This order requires the company to pay a total of over $6.1 million, including disgorgement, prejudgment interest, and a civil penalty.
As part of the settlement, Impact Theory is also required to establish a Fair Fund to facilitate the return of funds to affected investors. Additionally, the company must destroy all Founder’s Keys under its control, publicize the SEC order on its online platforms, and waive any future secondary market transaction royalties related to the Founder’s Keys.
The SEC’s investigation into this matter was conducted by its New York Regional Office, with support from the Enforcement Division’s Crypto Assets and Cyber Unit (CACU) and the Division of Economic and Risk Analysis.
In conclusion, Impact Theory’s settlement with the SEC serves as a reminder that companies operating in the NFT space must comply with securities regulations to avoid potential legal consequences. The case highlights the need for clear guidelines and regulatory oversight to ensure the integrity and investor protection in the rapidly evolving world of digital assets.
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