In a groundbreaking case, Los Angeles-based media company Impact Theory LLC has agreed to settle charges with the U.S. Securities and Exchange Commission (SEC) by paying $6.1 million. The case marks the SEC’s first enforcement action involving non-fungible tokens (NFTs).
Impact Theory allegedly raised $29.9 million by selling 13,921 of its "Founder's Keys" NFTs in late 2021 and received an additional $978,000 from secondary sales. The company marketed these NFTs in "Legendary," "Heroic," and "Relentless" tiers, likening the investment opportunity to investing in Walt Disney before the 1928 introduction of Mickey Mouse. The SEC noted that the company also compared the NFTs to giving "$20 to Mark Zuckerberg in his dorm room."
As part of the settlement, Impact Theory will pay a $500,000 fine and surrender $5.6 million, including interest. The company is also required to destroy all "Founder's Keys" NFTs in its possession. The SEC's New York office director, Antonia Apps, stated that failure to register these digital assets deprives investors of vital safeguards provided by securities laws.
Impact Theory expressed disappointment in the SEC's interpretation of NFTs as securities but was pleased to reach a settlement. SEC commissioners Hester Peirce and Mark Uyeda partially dissented, stating that the regulator owed better guidance to investors on the classification of NFTs.
The settlement follows another landmark case from August 22, where Nathaniel Chastain, a former product manager at OpenSea, received a three-month jail sentence in the first insider trading case involving digital assets.
This case is particularly notable as it sets a legal precedent concerning NFTs and securities law, raising questions about how regulatory agencies will approach these digital assets in the future.
