SEC Sues Web3 Firm for Raising $30M With NFTs to “Build the Next Disney”
Non-fungible token (NFT) company Impact Theory has been sued by the US Securities and Exchange Commission (SEC) for offering unregistered securities in the form of digital collectibles. Impact Theory agreed to pay a $6.1 million penalty to settle the lawsuit, which could signal the beginning of a broader crackdown on NFT projects in the US.
Impact Theory Raised $30M From Unregistered Securities Sales, SEC Claims
The US SEC has taken enforcement action against media and entertainment group Impact Theory Monday, accusing it of offering unregistered securities through NFT sales. The move represents the first SEC’s enforcement action targeting NFTs.
According to the regulator’s press release, Impact Theory rolled out an NFT collection dubbed “Founder’s Keys” in late 2021 and secured roughly $30 million from hundreds of investors. The NFT developer said it was attempting “to build the next Disney” and planned to use the sales proceeds to develop new projects, growth, and team expansion. Founder’s Keys consisted of three tiers of NFTs, known as “Legendary,” “Heroic,” and “Relentless.”
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Impact Theory Agrees to Pay $6.1M Penalty
Impact Theory encouraged investors to buy the collection, claiming it was akin to investing in the company. In other words, the group argued that if the project became successful, its investors would secure substantial returns on their initial purchases.
“Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts,” said the SEC in the press release. The regulator added that NFTs investors bought were offered in the form of “investment contracts,” classifying them as “securities.”
The NFT project did not admit nor deny the SEC’s allegations, though it agreed to a cease-and-desist order ruling that it breached securities registration regulations. As a result, Impact Theory will pay a $6.1 million “disgorgement, prejudgment interest, and a civil penalty” and wipe out any Founder’s Keys NFTs it holds.
Further, the NFT developer has also been ordered to remove any royalty it may receive in the secondary markets and establish a “Fair Fund” to compensate affected investors.
Meanwhile, the case against Impact Theory also raises broader questions “with which the Commission should grapple before bringing additional NFT cases,” two SEC commissioners said. The government agency has been leading an extensive crackdown on the crypto industry, filing lawsuits against Ripple, Binance, and Coinbase for allegedly offering unregistered securities through cryptocurrency trading.
Do you think the enforcement action against Impact Theory could signal the start of a broader clampdown on NFT developers in the US? Let us know in the comments below.