Impact Theory, known for entertainment and educational podcasts, aimed to create a new Disney and offered NFT to investors.
The Securities and Exchange Commission (SEC) of the United States has charged a media and entertainment company with conducting unregistered securities transactions when it sold non-fungible 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 nearly $30 million by selling three grades of Founder’s Keys, referred to as non-fungible tokens (NFTs).
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:
“Impact Theory emphasized that it was ‘trying to build the next Disney,’ and, if successful, it would deliver ‘tremendous value’ to Founder’s Key purchasers.”
The SEC determined that the NFTs were investment contracts, and therefore securities and that the company violated the Securities Act of 1933 by selling them unregistered. Impact Theory complied with the cease-and-desist order that was issued.
The SEC ordered the company to pay over $6.1 million in disgorgement, prejudgment interest, and a civil penalty without conceding or denying the agency’s findings. Moreover, a fund will be established to return capital 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 cease receiving royalties from future NFT transactions on the secondary market.
According to NFT Stats, a “Legendary” (top-tier) Founder’s Key NFT was last sold two days ago for $1,468 as one of ten sales in the previous week. The total supply of tokens is 13,572, with 4,620 holders. The Founder’s Key is merely one of the company’s suites of NFTs.
How it started How it’s going pic.twitter.com/REUcdwwY0k
— ZachXBT (@zachxbt) August 28, 2023In their dissent, SEC commissioners Hester Peirce and Mark Uyede wrote that this was the SEC’s first enforcement action involving an NFT. “[T]he NFTs were not shares of a company and did not generate any type of dividend for purchasers,” they wrote, adding:
“[W]e share our colleagues’ worry about the type of hype that entices people to spend almost $30 million for NFTs seemingly without having a clear idea about how they will use, enjoy, or profit from them. […] This legitimate concern, however, is not a sufficient basis to pull the matter into our jurisdiction.”
The assurances made by Impact Theory and cited in the SEC’s order “are not the kinds of promises that form an investment contract.” The commissioners contrasted the promises made about the NFTs to those made by collectibles sellers. They suggested a list of nine queries the agency should consider before pursuing NFT cases.
“Regardless of what one thinks of the Howey analysis, this matter raises larger questions with which the Commission should grapple before bringing additional NFT cases.”
