On August 28, the SEC filed charges against media company Impact Theory for "conducting an unregistered offering of crypto asset securities in the form of purported non-fungible tokens (NFTs)". This is the regulator's first enforcement action related to NFTs.
Details of the SEC vs. Impact Theory charge
According to a press release by the SEC, Impact Theory released a "Founder's Keys" NFT collection in 2021, raising up to $30 million through the sales. The regulator states that the promotion looked like an investment in the business, suggesting that if the company was successful, "it would deliver 'tremendous value' to the founder's key purchasers.".
On this basis, the SEC held that the NFTs constituted investment contracts and, as a result, were securities.
The Commission has ordered Impact Theory to:
💸 pay a $6.1 million fine;
🤝 make a refund to all investors who purchased these NFTs;
🔥 destroy the tokens in the company's possession and disable royalties received by the organisation for reselling on the secondary market.
Reaction to the case
Such a move by the SEC could not go unnoticed in the media. Thus, SEC commissioners Hester Pierce and Mark Ueda criticised the regulator's order. According to them, before bringing cases regarding NFT sales, the SEC should answer some of the questions about NFTs to clarify the regulation in this area.
The commissioners also disagree with the application of the Howey test, emphasising that the SEC "does not routinely bring enforcement actions against people that sell watches, paintings, or collectibles along with vague promises to build the brand and thus increase the resale value of those tangible items".
One of the active members of the Azuki collection community pointed at the seriousness of this case and warned holders of various NFTs that the SEC's claims may apply to other collections as well.
A user under the nickname FITZY.eth shared a similar opinion, highlighting that it is very common for NFTs founders to make promises just like those of Impact Theory.
ZachXBT, known in the crypto community for his research, recalled how he warned about the dangers of this NFT collection back in 2021 and called it a "pyramid scheme".
All of these developments coincide with the backdrop of a severe drop in interest in the NFT market, so we can only speculate about the future trajectory of the NFT world.
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