SEC’s First Enforcement Action Against NFTs: Impact Theory’s NFTs Considered Unregistered Securities 

The world of cryptocurrencies has always fallen victim to the accusations of regulatory bodies. The recent charges against Ripple Labs by the US Security and Exchange Commission (SEC), claiming their native token XRP to be a security is one of the many new such actions taken by the regulatory bodies. However, the SEC has directed their attention towards non-fungible tokens (NFT) and has issued their first enforcement action against it. The cryptocurrency community is alarmed by the SEC charging Impact Theory, a Los Angeles-based company that issues NFTs, with selling unregistered securities.

Background of Impact Theory

Impact Theory is a Los Angeles-based media company and the first of its kind to catalyze a global transformation through the incubation of mission-driven enterprises and fostering empowering content. The company’s mission is to drive people out of the matrix at scale by instilling an empowering mindset. The team aims to motivate people by creating world-class entertainment and educational content. Impact Theory engages in the creation and production of webcomics, video games,  films, and TV along with crafting top-tier content for Youtube and podcasts. This mission-based studio developing fictional and nonfiction content has garnered immense popularity with their single YouTube video having over half a billion views. 

Additionally, Impact theory offers three tiers of NFTs known as the Founders Key. These are named by the company as Legendary, Heroic, and Relentless and act as a key to investing in their business. The company promoted the idea that the purchase of Founder Keys would allow investment into the company and generate profitable gains if Impact Theory’s venture becomes successful. They stated that the company was attempting to build the next Disney and their success would land up giving tremendous value to its purchasers. 

SEC’s Actions Against Impact Theory

The US Security and Exchange Commission (SEC) filed a legal action against Impact Theory stating that the transactions were illegitimate unregistered securities offerings.  The NFTs qualify the criteria of security because of the promise made by Impact Theory that the investors would draw profit from the collectibles. The company has been ordered by the SEC to compensate the investors who bought their NFTs and destroy the remaining NFTs in possession. Impact Theory is liable to pay over $6.1 million to the federal regulators as a penalty amount, as per the order. 

As per the recent report from the market regulator, the compact had amassed around $30 million from the selling of their three-tier NFTs that the SEC declared as security. The SEC’s conclusions do not imply that the regulators consider every NFT as security limiting the possible repercussions of the action. 

Though the NFT market is emerging and rapidly evolving, SEC intends to highlight the importance of adhering to the securities law. Their first legal actions against Impact Theory’s NFTs mark a significant moment in the digital assets world. As per the updates Impact Theory has agreed to the orders of the SEC and will be reimbursing the investors who purchased the NFTs and destroying the remaining. However, this incident serves as a reminder that though the decentralized nature of cryptocurrencies and NFTs has gained favorable traction, the regulatory bodies are taking a close look to protect the interests of the investors and creators. 

Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Puskar Pande

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