Impact Theory, a media company that sold NFTs to fund its operations, has agreed to a cease-and-desist order with the Securities and Exchange Commission (SEC), which alleges that the sale of these NFTs represented an offering of unregistered securities.
The order alleges that Impact Theory sold multiple tiers of NFTs to fund its operations and promised it would provide “tremendous value” to NFT purchasers. Specifically, it told investors that it “will make sure that we do something that, by any reasonable standard, people got a crushing, hilarious amount of value.”
The company repeatedly made clear that these NFTs were supposed to represent “the mechanism by which communities will be able to capture economic value from the growth of the company they support.” Impact Theory had raised around $30 million from purchasers of these NFTs.
The firm had already agreed to repurchase the NFTs and has now agreed to destroy all of them in its possession, eliminate the royalty on any existing NFTs, and come up with a plan to continue to return funds to investors.
Is Impact Theory the first of many?
This case represents a new engagement of the SEC with the lucrative NFT market that may represent the beachhead of a new effort to bring NFTs into its jurisdiction. The SEC certainly wishes to convey that more are on the horizon:
“Today the Commission brought its first non-fungible token (NFT) enforcement action,” reads the opening sentence of the SEC’s official statement released on Monday.
However, the SEC Commissioners weren’t unanimous in their support for this action, with Commissioner Hester Peirce and Commissioner Mark Uyeda releasing a statement that details their digressions. Their statement specifically describes their worries that “even if the NFT sales here fit squarely within [the Howey Test], is this set of facts one that warrants an enforcement action?”
They specifically highlight 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.”