SEC Charges Media Company for Unregistered NFT Sales, Raises Questions About Jurisdiction
Summary:
The SEC charges media company for selling unregistered NFTs as securities, ordering payment of $6.1 million and creation of refund fund for investors. Dissenting SEC commissioners raise questions about the agency's jurisdiction over NFT cases.
The US Securities and Exchange Commission (SEC) has taken legal action against a media and entertainment company for unregistered securities sales involving nonfungible tokens (NFTs) between October and December 2021. Los Angeles-based company Impact Theory, known for its entertainment and educational content, including podcasts, allegedly raised nearly $30 million from the sale of NFTs called Founder's Keys in three different tiers. The company marketed the purchase of Founder's Keys as an investment, stating that it aimed to become "the next Disney" and bring significant value to the purchasers. The SEC determined that these NFTs constituted investment contracts, thus making them securities, and concluded that the company violated the Securities Act of 1933 by conducting unregistered sales. As a result, the SEC issued a cease-and-desist order, which Impact Theory has agreed to comply with. Under the order, the company must pay over $6.1 million in disgorgement, prejudgment interest, and civil penalties, without admitting or denying the SEC's findings. Additionally, a fund will be established to refund the investors in the Founder's Key NFTs. Impact Theory is required to destroy all Founder's Keys in its possession or control, publish a notice of the order on its websites and social media platforms, and forgo any royalties from future secondary market sales of the NFTs. The Founder's Keys NFTs are one of the offerings provided by the company, which did not respond to Cointelegraph's request for comment at the time of publication. It is worth noting that this marks the SEC's first enforcement action involving an NFT, according to SEC commissioners Hester Peirce and Mark Uyeda, who expressed dissent in the decision. They argued that the NFTs in question did not represent shares in the company nor generate any dividends for purchasers. The commissioners acknowledged concerns about the hype surrounding NFTs but suggested that the promises made by Impact Theory did not constitute investment contracts. They likened the statements about the NFTs to those made by collectible sellers and put forth nine questions that the SEC should consider before pursuing other NFT-related cases.
Published At
8/28/2023 6:02:03 PM
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