The SEC charges a NFT company with unregistered offering of cryptoasset securities

The US Securities and Exchange Commission (SEC) has charged Los Angeles-based media and entertainment company, Impact Theory, with conducting an unregistered offering of crypto asset securities in the form of non-fungible tokens (NFTs). Impact Theory raised approximately $30 million from hundreds of investors, including those in the United States, through the offering.

According to the SEC’s findings, Impact Theory sold three tiers of NFTs called Founder’s Keys, presenting them as investments into the company. The company claimed that investors would profit if Impact Theory achieved success, likening their ambitions to building the next Disney.

The SEC’s order determined that the NFTs sold by Impact Theory were investment contracts, classifying them as securities under the US securities laws. As a result, Impact Theory violated securities laws by offering and selling these crypto asset securities to the public without registering them or qualifying for an exemption. Failing to register with SEC deprives investors of the protections provided by robust disclosures and other safeguards established by securities laws.

Without admitting or denying the SEC’s findings, Impact Theory agreed to a cease-and-desist order. The company will pay over $6.1 million in disgorgement, prejudgment interest, and a civil penalty. In addition, a Fair Fund will be created to refund the money paid by injured investors to purchase the NFTs. Impact Theory will also destroy all Founder’s Keys in its possession or control. Furthermore, the company must relinquish any future royalties it may receive from secondary market transactions.

Why does it matter?

This case underscores the importance of proper registration and compliance with securities laws for companies engaging in the offering of cryptocurrencies and other crypto assets, including NFTs. It also might set the precedent for future charges toward companies that create and offer the non-fungably tokens in the United States.