Wall Street’s main regulator expanded its crackdown on crypto products Monday by accusing a Los Angeles-based media and entertainment company of offering nonfungible tokens that were really unregistered securities.
The U.S. Securities and Exchange Commission alleged that Impact Theory LLC raised approximately $30 million from hundreds of investors through its NFT offerings. The SEC said the offerings should have been registered with the agency, and that Impact Theory had agreed to pay more than $6 million to settle the allegations.
The settlement marks the agency’s first enforcement action on NFTs, solidifying another front in its clampdown of crypto products that the SEC says are really securities under its remit. Since at least last year, the regulator has been scrutinizing creators of NFTs and exchanges where they trade.
Impact Theory agreed to the monetary penalty and to a cease and desist order, without admitting or denying the SEC’s allegations.
The company in a statement said it is focused on the future of its business following the settlement. “Although we are disappointed that the SEC has chosen to broadly question the exciting technical innovations that make digital assets possible through the lens of the securities laws, we remain optimistic for the future of this industry in the United States, and hope we remain the global home of innovation,” Impact Theory said.
According to the SEC, Impact Theory sold three tiers of NFTs, which it called Founder’s Keys, and told investors to view them as investments in the business. Impact Theory said it was “trying to build the next Disney,” and that if it was successful, NFT holders would get “tremendous value” for their purchases, the regulator said.
Republican SEC Commissioners Hester Peirce and Mark Uyeda issued a dissenting statement, saying they didn’t agree with how the regulator in this case applied a decades-old legal test to determine when a product is an investment contract.
“The NFTs were not shares of a company and did not generate any type of dividend for the purchasers,” the commissioners said.
