SEC Goes After an NFT Project for the First Time

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In a groundbreaking move, the US Securities and Exchange Commission (SEC) has taken its first-ever enforcement action against a non-fungible token (NFT) project, alleging the sale of unregistered securities.

The SEC’s scrutiny has fallen upon Impact Theory, a media and entertainment company based in the vibrant city of Los Angeles. In 2021, they raised an impressive $30 million by selling NFTs named Founder’s Keys.

Impact Theory pitched their endeavor as “the next Disney” and made bold claims that the NFTs would appreciate in value if their ambitious vision was realized. Moreover, they pledged to reinvest the proceeds from the sales to fuel their business growth and future projects.

The SEC’s contention is that these declarations formed an integral part of the NFT’s investment contracts, a type of security that mandates registration with the SEC or adherence to an exemption. In their view, Impact Theory transgressed federal securities laws by offering and selling these NFTs without the requisite registration or exemption.

Impact Theory Settles with the SEC

In a move designed to resolve the matter without admitting guilt, Impact Theory has agreed to a cease-and-desist order. The company has also agreed to pay penalties amounting to $6.1 million and committed to destroying all the NFTs under their control. Notably, they have waived any royalties they may have received from secondary market NFT sales.

This significant development serves as a stark warning to the wider NFT community, signaling the SEC’s heightened vigilance in this burgeoning market. The SEC, in its commitment to shielding investors from potential fraud and misconduct in the crypto realm, has urged both NFT issuers and investors to engage with securities lawyers before embarking on any NFT transactions.

The SEC’s move is not just an isolated incident but a harbinger of potential legal intricacies for those operating in the NFT space. It reinforces the importance of adhering to established regulations to ensure the credibility and prosperity of the NFT market.

 

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