SEC Charges Impact Theory with Selling Unregistered Securities as NFTs

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SEC charges Impact Theory Unregistered Securities as NFTs

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Photo Credit: Impact Theory

The Securities and Exchange Commission (SEC) has charged media company Impact Theory with offering unregistered securities in the form of NFTs.

The SEC says Impact Theory raised $30 million in funds from hundreds of investors through the offering. From October to December 2021, Impact Theory offered and sold three tiers of NFTs—known as Founder’s Keys—in the form of ‘Legendary,’ ‘Heroic,’ and ‘Relentless.’ The SEC says Impact Theory encouraged potential investors to view the purchase as an investment in the business, stating that investors would profit if Impact Theory was successful in its endeavors.

“Among other things, Impact Theory emphasized that it was ‘trying to build the next Disney,’ and, if successful, it would deliver ‘tremendous value’ to Founder’s Key purchasers,” the filing reads. The order finds that the NFTs offered and sold to investors were investment contracts and, therefore, are securities subject to the SEC’s governance. “Accordingly, Impact Theory violated the federal securities laws by offering and selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.”

“Absent a valid exemption, offerings of securities, in whatever form, must be registered,” adds Antonia Apps, Director of the SEC’s New York Regional Office. “Without registration, investors of all types are deprived of the protections afforded them by the robust disclosures and other safeguards long provided by our securities laws.”

Without admitting to or denying the SEC findings, Impact Theory agreed to the cease-and-desist order, which found Impact Theory violated registration provisions laid out in the Securities Act of 1933. Impact Theory also paid $6.1 million in disgorgement, prejudgment interest, and civil penalties.

Impact Theory also agreed to destroy all Founder’s Keys in its possession or control, publish notice of the order on its websites and social media channels, and eliminate any royalty that Impact Theory might otherwise receive from future secondary market transactions involving the Founder’s Keys.