In a precedent-setting move, the U.S. Securities and Exchange Commission (SEC) has taken its inaugural stance on the blossoming NFT industry. LA-based entertainment heavyweight, Impact Theory, became the first company to face an NFT enforcement action by the regulatory body.
The Alleged Violations
Between October and December of 2021, Impact Theory launched a sale of its three-tiered NFTs: "Founder's Keys". These tiers, named Legendary, Heroic, and Relentless, raked in a staggering $30 million from enthusiastic investors all across the United States. However, the SEC has determined that these offerings were not appropriately registered.
The crux of the matter? Impact Theory had alluded to these NFTs as investments into what they painted as "the next Disney", a pitch that the SEC has subsequently deemed as "investment contracts" per the Howey Test. This characterization by the SEC implies that the NFTs were tantamount to unregistered securities, a violation of federal regulations.
The Settlement Details
While Impact Theory neither confirmed nor refuted the charges, they opted for a settlement. This agreement encompasses a cease-and-desist directive alongside penalties amounting to approximately $6.1 million.
Today we charged Impact Theory LLC, a media and entertainment company headquartered in Los Angeles, with conducting an unregistered offering of crypto asset securities in the form of purported NFTs. Impact Theory raised approximately $30 million from hundreds of investors.
— U.S. Securities and Exchange Commission (@SECGov) August 28, 2023
This hefty sum is inclusive of both the company's profits and royalties from the NFT sale. Furthermore, as an added layer of compliance, Impact Theory has committed to publicizing the SEC's order across its online platforms and, most notably, will obliterate all the "Founder's Keys" NFTs it possesses.
A Glimpse into the Future of Digital Assets
In a candid tweet, Tom Bilyeu, Co-Founder of Impact Theory, communicated the company's alignment with the settlement, emphasizing their eagerness to redirect their energies towards future undertakings and their robust community. Although the firm expressed its reservations about the SEC's sweeping approach towards digital innovations, they remain hopeful about the trajectory of this sector in America. In the forthcoming times, Impact Theory pledges to underline that their digital offerings are, at their core, collectibles with value, negating any insinuations of them being investment vehicles.
Will be live in Discord later to answer questions. @impact_theory is pleased to announce that we have reached a settlement with the U.S. Securities and Exchange Commission in which we resolved the SEC’s investigation. We are happy to have concluded the SEC’s investigation, so…
— Tom Bilyeu (@TomBilyeu) August 28, 2023
Reflecting on their recent endeavors, the company illuminated their "Project Kyzen" – hailed as a pioneering amalgamation of storytelling and gaming that's earmarked as a game-changer in the entertainment sphere. With several major launches on the horizon for 2023, Impact Theory is poised to redefine the contours of what they dub as "Borderless Entertainment", merging technological advances with riveting narratives.
Navigating the Evolving Landscape of NFTs
The SEC's recent action underscores the meticulous attention regulators are now paying to the burgeoning NFT space. With its vast potential, NFTs are simultaneously inviting both innovations and scrutiny. As the digital asset landscape undergoes rapid evolution, companies and investors alike would be well-advised to tread with prudence, ensuring their ventures remain within the ambit of established legal parameters.
