In a significant development within the non-fungible token (NFT) arena, the United States Securities and Exchange Commission (SEC) has taken its inaugural enforcement action against a major player, Impact Theory. The SEC alleges that Impact Theory, a prominent Los Angeles-based media and entertainment entity, engaged in an unregistered securities offering within the NFT space.
According to the regulatory body’s assertions, Impact Theory raised approximately $30 million from the sale of NFTs, coupled with affirmations of their value appreciation potential. However, these NFTs did not confer ownership stakes in the company nor did they generate any dividends for their purchasers.
At the core of the SEC’s charges is Impact Theory’s “Founder’s Keys,” categorized into three tiers: “Legendary,” “Heroic,” and “Relentless.” The company purported that acquiring these keys amounted to investing in the company itself. Impact Theory conveyed that individuals attaining these keys would emerge as “investors,” poised to reap substantial rewards should the company achieve significant accomplishments.
The SEC’s inquiry revealed that Impact Theory consistently drew parallels between its ambitions and the trajectories of established entities such as Disney, Call of Duty, and YouTube. Consequently, the company successfully garnered $30 million from investors. The SEC contends that the NFTs offered by Impact Theory constitute investment contracts classified as securities, thereby asserting that the company engaged in the sale of unregistered securities through these NFT offerings.
The settlement between the SEC and Impact Theory encompasses disgorgement, prejudgment interest, and a civil penalty. A Fair Fund will be instituted to provide restitution to affected investors. Further, Impact Theory is mandated to obliterate all Founder’s Keys within its possession, disseminate the order across its online platforms, and halt any prospective secondary market transaction royalties.
Notably, Crypto investigator ZachXBT raised caution about Impact Theory in October 2021, accusing the company of orchestrating a growth mindset pyramid scheme. This cautionary voice dubbed Impact Theory’s actions as “the worst NFT cash grabs yet.”
In response to these developments, CEO Tom Bilyeu of Impact Theory unveiled a settlement with the SEC, thereby resolving the ongoing investigation. While expressing disappointment with the SEC’s broad scrutiny of technical innovations within the digital assets domain, he expressed optimism regarding the industry’s future trajectory within the United States.
This landmark event underscores the SEC’s intent to actively regulate the evolving landscape of NFTs, safeguarding investor interests and ensuring compliance within this innovative domain.
