Impact Theory produces entertainment and educational podcasts and was “trying to build the next Disney” when it invited investors to purchase its NFTs.
The United States Securities and Exchange Commission (SEC) has charged a media and entertainment company with conducting unregistered securities sales when it sold nonfungible tokens (NFTs) to investors between October and December 2021.
Impact Theory, a Los Angeles-based company that produces entertainment and educational content, including several podcasts, allegedly raised almost $30 million through the sales of NFTs it called Founder’s Keys, which were offered in three tiers.
The company “encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business,” according to the SEC, and:
The SEC found that the NFTs were investment contracts, and so securities, and the company violated the Securities Act of 1933 by selling them without registration. It issued a cease-and-desist order that Impact Theory has agreed to.
Under the SEC order, the company was ordered to pay a total of more than $6.1 million in disgorgement, prejudgment interest and a civil penalty, without admitting to or denying the agency’s findings. Further, a fund will be created to return money to investors in Founder’s Key NFTs. Impact Theory will destroy all Founder’s Keys in its possession or control, publish a notice of the order on its websites and social media channels, and not receive royalties from future sales of the NFTs on the secondary market.
A Founder’s Key “Relentless” NFT. Source: OpenSea
According to NFT Stats, a “Legendary” (top) tier Founder’s Key NFT last sold two days ago for $1,468 as one of 10 sales in the last week. The token supply is 13,572, with 4,620 owners. The Founder’s Key is only one suite of NFTs the company offers. The company did not respond to a Cointelegraph inquiry by the time of publication.
How it started How it’s going pic.twitter.com/REUcdwwY0k
This was the SEC’s first enforcement action involving an NFT, SEC commissioners Hester Peirce and Mark Uyeda wrote in their dissent of the action. “[T]he NFTs were not shares of a company and did not generate any type of dividend for the purchasers,” they wrote, adding:
The promises made by Impact Theory and cited in the SEC order “are not the kinds of promises that form an investment contract.” The commissioners compared the promises made about the NFTs to statements made by sellers of collectibles. They went on to suggest a list of nine questions the agency should consider before pursuing NFT cases: