SEC Fines LA Company $6 Million Over NFTs Sold as Securities

By Decrypt AI, Edited by Stacy Elliot

Los Angeles-based media company Impact Theory has paid a $6 million settlement after the Securities and Exchange Commission (SEC) alleged its NFTs were unregistered securities, according to a press release. The company has also been ordered to destroy all the Founder's Key NFTs as a result of the settlement.

As of midday on Monday, Founder's Key collection was still live on Opensea. As of this writing, the NFTs have a floor price of 0.039 Ethereum, or approximately $64. Since the collection launched, it's done $5.4 million in total volume according to Opensea. Impact Theory was co-founded by entrepreneur and social media influencer Tom Bilyeu.

Screenshot of Impact Theory Founders Key NFT collection on Opensea taken on Monday, August 28, 2023.

The SEC announced the allegations and settlement on Monday, saying the company raised approximately $30 million from a diverse group of investors, including some based in the U.S..

According to the SEC's allegations, between October and December of 2021, Impact Theory introduced and traded three unique NFT tiers named Founder’s Keys, labeled as “Legendary,” “Heroic,” and “Relentless.” The SEC's findings indicate that Impact Theory actively promoted these NFTs to potential backers as a direct investment opportunity in the company. They conveyed that purchasing a Founder’s Key would yield returns if the firm thrived, often drawing parallels to their ambition of emulating the success trajectory of major entertainment conglomerates like Disney.

The SEC now alleges these NFTs are security investment contracts. And by extension, Impact Theory made an offering of unregistered securities when it sold the NFTs.

In response to the SEC's findings—and without admitting or disputing the charges—Impact Theory has agreed to a cease-and-desist order. This mandates that the company violated the Securities Act of 1933's registration rules, leading them to fork over a total exceeding $6.1 million.

The settlement includes disgorgement, prejudgment interest, and a civil penalty. Additionally, a Fair Fund will be set up to facilitate the return of funds to affected investors. The company is also required to destroy all Founder’s Keys under their control, publicize the order on their online platforms, and waive any future secondary market transaction royalties linked to the Founder’s Keys.

The SEC's inquiry into the matter was managed by its New York Regional Office, with support from the Enforcement Division's Crypto Assets and Cyber Unit (CACU) and the Division of Economic and Risk Analysis.

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