The Securities and Exchange Commission has taken legal action against Impact Theory, LLC, a media and entertainment firm headquartered in Los Angeles. The company has been accused of engaging in an unregistered offering of crypto asset securities through non-fungible tokens (NFTs), resulting in charges being filed.
Impact Theory managed to raise a substantial sum of around $30 million from numerous investors, including individuals from across the United States, during the offering period. The SEC’s investigation revealed that from October to December 2021, Impact Theory introduced three categories of NFTs named Founder’s Keys, which were categorized as “Legendary,” “Heroic,” and “Relentless.”
The Commission’s order highlights that Impact Theory actively encouraged potential investors to perceive the acquisition of a Founder’s Key as a strategic investment in the company. They conveyed the notion that purchasers would gain profits from their investments if Impact Theory achieved its goals. The company went to the extent of likening its ambitions to those of “the next Disney,” insinuating that its success would translate to substantial value for purchasers of Founder’s Keys. The order conclusively determines that the NFTs offered and sold to investors essentially functioned as investment contracts and thus qualified as securities. Consequently, Impact Theory violated federal securities regulations by initiating the sale of these crypto asset securities to the public without proper registration, disregarding any potential exemptions.
Antonia Apps, the Director of the SEC’s New York Regional Office, stated, “Offerings of securities, irrespective of their form, must undergo registration unless a valid exemption applies. By neglecting registration, all types of investors are denied the protections established by our securities laws, which have long been responsible for ensuring comprehensive disclosures and safeguards.”
In a resolution to the matter, Impact Theory, neither admitting nor denying the SEC’s findings, agreed to a cease-and-desist order that acknowledges its breach of the registration provisions outlined in the Securities Act of 1933. The company has been instructed to make payments exceeding $6.1 million in combined disgorgement, prejudgment interest, and a civil penalty. The order also mandates the creation of a Fair Fund, which will facilitate the return of funds to investors who suffered losses due to their NFT purchases. Furthermore, Impact Theory is obligated to dispose of all Founder’s Keys in its possession or under its control. It must also publicly announce the SEC’s order on its official websites and social media platforms, in addition to renouncing any royalties that could potentially be derived from future secondary market transactions involving the Founder’s Keys.