U.S. SEC Charges NFT Project With Selling Unregistered Securities
The U.S. Securities and Exchange Commission (SEC) has announced its first enforcement action against a non-fungible token (NFT) project. The…
The U.S. Securities and Exchange Commission (SEC) has announced its first enforcement action against a non-fungible token (NFT) project. The agency charged Impact Theory, a California-based media and entertainment company, with selling unregistered securities in the form of NFTs.
- NFTs are cryptographic tokens hosted on a blockchain that can represent digital assets like images, videos, audio, etc.
Impact Theory, a media company founded by entrepreneur Tom Bilyeu, raised $30mn from a 2021 NFT offering, the SEC said. The agency considered the offering a sale of unregistered securities, setting a precedent that may land other NFT projects in legal trouble.
Under current Chairman Gary Gensler, the SEC has sued multiple crypto projects, asserting that their sales constituted unregistered securities offerings. It also sued several crypto exchanges for operating unregistered securities exchanges, including Bittrex, Binance, and Coinbase.
U.S. Congress hasn’t passed a law affirming whether digital tokens legally qualify as securities. Yet, in its enforcement capacity, the SEC considers many tokens as securities and has filed lawsuits based on its rationale.
According to the SEC, Impact Theory told investors that they could profit from their NFTs if the company grew and that it was “trying to build the next Disney.” The SEC alleged that the NFT sale violated federal securities laws because it wasn’t registered with the agency.
- Impact Theory didn’t challenge the SEC’s lawsuit; it opted for a settlement. The company has agreed to a cease-and-desist order for the alleged securities violations. It also agreed to pay $6.1mn in disgorgement, prejudgment interest, and a civil penalty. The SEC will establish a “Fair Fund” with the fine to return money to affected investors.
- Under the settlement, Impact Theory agreed to destroy all NFTs in its possession and forfeit any royalties it was entitled to receive from future sales of its NFT collection.
Impact Theory produces business-oriented videos and podcasts. Its founder, Tom Bilyeu, previously co-founded Quest Nutrition, a protein bar company that sold for $1bn in cash in 2019.