The U.S. Securities and Exchange Commission (SEC)’s recent actions have shaken the world of NFTs. In a recent announcement, the SEC took its first enforcement action against Impact Theory’s Founder Keys NFT project. Also, this shift reflects how the law views these digital assets.

Quick Takes:

  • The US Securities and Exchange Commission has taken action against an NFT project “Founder Keys”.
  • The SEC targets an NFT series released by LA company Impact Theory, which is accused of conducting an unlawful, unregistered US offering. 
  • The complaint focuses on how the NFT was marketed and how its proceeds will be used.
Tom Bilyeu is the Co-Founder of Impact Theory.

The Case Against Impact Theory

Impact Theory, a media and entertainment company, found itself on the SEC’s target. The business run by Tom Bilyeu had previously sold NFTs known as “Founder’s Keys“. Moreover, these NFTs were not just digital collectibles; the company marketed them as an investment in its future.

Also, Impact Theory tricked potential investors with promises of significant returns. However, the SEC regarded these NFTs as unregistered securities.  Furthermore, the SEC charged a huge fine of $6 million for the settlement of the case. Given that, the company ordered the destruction of all the Founder’s Key NFTs.

More Details Unveiled

The SEC’s report states that Impact Theory released three unique NFT names: “Legendary,” “Heroic,” and “Relentless”. They also promoted these to potential buyers, promising significant returns.

While the SEC’s settlement action seemed straightforward, two prominent SEC commissioners, Hester Peirce and Mark Uyeda, showed their disagreement. Additionally, they questioned the application of the Howey test, a criterion that determines if an asset is a security for NFTs. 

Responding to the allegations, Impact Theory claimed they were “trying to build the next Disney” and would use the proceeds for development. Regardless, the SEC stated that they could consider all those offers as securities, but Impact Theory had not registered them under the law as required.

In addition, the SEC has made it clear that it is mandatory to comply with the regulations. The SEC’s New York Regional Office managed the inquiry. Finally, they had support from the Enforcement Division’s Crypto Assets and Cyber Unit and the Division of Economic and Risk Analysis.

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