The U.S. Securities and Exchange Commission (SEC) has charged Los Angeles-based Impact Theory, LLC, for carrying out an unregistered offering of crypto asset securities as non-fungible tokens (NFTs). The media and entertainment company allegedly raised around $30 million from hundreds of investors, including those in the United States, through this offering.
Unveiling the Details
From October to December 2021, Impact Theory promoted and sold three levels of NFTs, named Founder’s Keys: “Legendary,” “Heroic,” and “Relentless.” The SEC order reveals that Impact Theory incentivized potential investors by presenting the Founder’s Key purchase as a business investment. They claimed investors would profit if the company succeeded in its endeavors. Among other statements, the company stressed its ambition to “build the next Disney,” promising “tremendous value” to Founder’s Key buyers if successful. The order concludes that the NFTs sold to investors were investment contracts, hence securities. As a result, Impact Theory broke federal securities laws by publicly offering and selling these crypto asset securities without registration or exemption.
SEC’s Stand on the Issue
Antonia Apps, Director of the SEC’s New York Regional Office, emphasized, “Offerings of securities, in whatever form, must be registered, absent a valid exemption. Without registration, all types of investors lack the protections provided by our securities laws’ robust disclosures and safeguards.”
Settlement and Consequences
Although not admitting or denying the SEC’s findings, Impact Theory consented to a cease-and-desist order. This order confirms the violation of the Securities Act of 1933’s registration provisions and mandates payment exceeding $6.1 million for disgorgement, prejudgment interest, and a civil penalty. Additionally, the order establishes a Fair Fund to refund the injured investors who bought the NFTs. Impact Theory also committed to destroying all Founder’s Keys in its control, publicizing the order on its websites and social media, and forfeiting any future royalties from secondary market transactions involving the Founder’s Keys.
The Investigation Team
The SEC’s investigation involved Benjamin Mishkin, Jessica Quinn, and Judith Weinstock from the SEC’s New York Regional Office. Moreover, Hane L. Kim from the Division of Examinations, Gwen Licardo, Pamela Sawhney, and Mark R. Sylvester from the Enforcement Division’s Crypto Assets and Cyber Unit (CACU), and Carmen Taveras Alam, Ignacio Franceschelli, and Joshua Mallett from the Division of Economic and Risk Analysis, contributed. Supervision of the investigation was under Sheldon Pollock, David Hirsch, and Jorge Tenreiro
