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SEC Charges Impact Theory for Unregistered NFT Offering: First Enforcement Action in NFT Sector


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The SEC Charges Impact Theory for Unregistered NFT Offering

The Securities and Exchange Commission (SEC) has taken its first enforcement action in the non-fungible token (NFT) sector by charging Impact Theory, a Los Angeles-based media and entertainment company, for conducting an unregistered offering of crypto-asset securities in the form of NFTs.


Impact Theory, co-founded by Tom Bilyeu, who is also a YouTube and podcast host, raised nearly $30 million from investors across the US through this show. From October to December 2021, the company offered three types of NFTs called Founder’s Keys, categorized into “Legendary,” “Heroic,” and “Relentless” levels. These NFTs were considered investment contracts and securities under federal law. Impact Theory promoted them not only as collectibles but also as investments in the company, aiming to become the “next Disney.”

The SEC’s Action and Criticism

The SEC’s New York regional office director, Antonia Abs, stated that securities offerings must be registered unless they qualify for an exemption. The SEC’s enforcement action highlights the need to protect investors in the evolving financial landscape. However, the SEC’s action has faced criticism from Republican commissioners Hester Pierce and Mark Ueda. They disagreed with the application of the Howey test, a legal standard used to determine whether a transaction constitutes an investment contract. They argued that Impact Theory’s promises were not clear enough to qualify as an investment contract and compared the NFT sale to the sale of collectibles or branded merchandise.

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Impact Theory’s Settlement

Impact Theory has agreed to comply with the SEC’s cease and desist order and will pay over $6.1 million in penalties, pre-trial interest, and a civil penalty. The company will also destroy all Founder’s Keys in its possession and issue a public notice across its platforms. The SEC will create a fair fund to return funds to affected investors. Tom Bilyeu, the co-founder of Impact Theory, announced the settlement and expressed relief, but also criticized the SEC’s approach to digital assets. The company plans to focus on “utility holdings” in the future.

Regulatory Landscape and Questions

This case highlights the uncertain regulatory landscape surrounding NFTs and raises important questions about how securities laws will adapt to new forms of digital assets.

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