SEC Imposes 20% Fine on NFT Project Impact Theory, Claiming $6.1M Of Raise

The United States Securities and Exchange Commission (SEC) charged and imposed fines on the Los Angeles-based media and entertainment company Impact Theory for conducting an unregistered sale of securities in the form of non-fungible tokens (NFTs).

U.S. SEC Fines Impact Theory

In an official press release, the agency alleged that Impact Theory launched an NFT collection between October and December 2021. Dubbed Founder’s Keys, the collection featured several NFTs grouped into three tiers – Legendary, Heroic, and Relentless. Investors from several locations partook in the collection mint, including users in the U.S., enabling Impact Theory to raise approximately $30 million from the sale.

The SEC added that Impact Theory attracted users to engage in the sale by promising “tremendous value” to its NFT holders as it tried “to build the next Disney.”

By failing to register the NFT collection as investment contracts and, by extension, securities, Impact Theory had broken the SEC’s securities laws that mandate projects and companies to register their products as securities before offering them to U.S. investors.

Showing that all forms of digital tokens are included, whether cryptocurrencies or NFTs, SEC’s New York Regional Office Director Antonia Apps said:

“Absent a valid exemption, offerings of securities, in whatever form, must be registered. 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 or denying the SEC’s allegations, Impact Theory agreed to a cease-and-desist order and a payment of a fine of $6.1 million, or approximately 20% of the amount it allegedly raised. The company also agreed to destroy all Founder’s Keys NFTs in its control and possession.

SEC vs. Crypto-Based Projects

The SEC has a long history of sanctioning crypto-based projects. Last week, the financial regulator sued cryptocurrency investment adviser Titan over claims that it used misleading performance metrics for adverts to lure investors.

A three-year-long legal battle has existed between the SEC and Ripple, a crypto-based payment company, over claims that Ripple offered an unregistered security called XRP. Despite a partial win by Ripple, the regulatory watchdog has moved to appeal the ruling in court.