The US Securities
and Exchange Commission (SEC) has taken its first enforcement action targeting
the non-fungible token (NFT) industry. Today (Monday), the securities regulator
announced that it has charged Impact Theory, a Los Angeles-based media and
entertainment company popular for its podcast, with raising about $30 million
from hundreds of investors, including those in the United States, through its
“unregistered” offering of crypto asset “securities”.
In a
statement, the said it has ordered the company to pay a grand total of $6.1 million to settle the charges. The grand figure includes a civil monetary
penalty and return of illicit profits plus interest.
Outside the
NFT industry, since December 2020, the SEC has been in a legal tussle with Ripple, a blockchain-based payments
network, over its XRP token which it claims is a securities token. However, in
recent months, the securities regulator has also turned its attention to crypto
exchanges, dragging Binance and Coinbase to court over their crypto
asset “securities” offered on “unregistered” trading platforms.
However, it
appears the NFT industry is next in line. In the statement released on Monday,
the regulator noted that its findings show that NFTs offered by Impact Theory
were investment contracts and therefore securities.
In previous
cases, the regulator argued that tokens listed on crypto exchanges were
“securities” by citing the Howey Test. The Test is a technique used to
determine when a financial transaction qualifies as an “investment contract”
and should be regulated as a security dealing by the SEC. The regulator has
severally contended that transactions are securities when they seek to generate
returns for investors.
Are NFT ‘Securities’ When Sold?
In the new
case against Impact Theory, SEC alleged that the media company between October
and December 2021, marketed and sold three levels of NFTs termed as “Founder’s
Keys.” These tokens were reportedly categorized as “Legendary,” “Heroic,” and “Relentless.”
“The order
finds that Impact Theory encouraged potential investors to view the purchase of
a Founder’s Key as an investment into the business, stating that investors
would profit from their purchases if Impact Theory was successful in its
efforts,” SEC further explained. “Among other things, 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.”
However,
Impact Theory neither admitted to nor denied the findings, according to the
SEC’s statement. Nonetheless, the media company agreed to the regulatory agency’s
cease-and-desist order.
Furthermore,
the firm has agreed to get rid of all “Founder’s Keys” in its possession. It
will also publish a notice about the SEC’s order on its website and social
media platforms and eliminate any royalty that it might otherwise receive from
future secondary market transactions involving the NFTs”
Additionally,
the SEC said it ordered Impact Theory to create a “Fair Fund” so as to refund
investors who purchased NFTs during the period it marketed the tokens.
“Absent a
valid exemption, offerings of securities, in whatever form, must be
registered,” commented Antonia Apps, Director of the SEC’s New York Regional
Office. “Without registration, investors of all types are deprived of the
protections afforded them by the robust disclosures and other safeguards long
provided by our securities laws.”
ASIC suspends AFS license; FCA warns against 5 fraudulent firms; read today’s news nuggets.
The US Securities
and Exchange Commission (SEC) has taken its first enforcement action targeting
the non-fungible token (NFT) industry. Today (Monday), the securities regulator
announced that it has charged Impact Theory, a Los Angeles-based media and
entertainment company popular for its podcast, with raising about $30 million
from hundreds of investors, including those in the United States, through its
“unregistered” offering of crypto asset “securities”.
In a
statement, the said it has ordered the company to pay a grand total of $6.1 million to settle the charges. The grand figure includes a civil monetary
penalty and return of illicit profits plus interest.
Outside the
NFT industry, since December 2020, the SEC has been in a legal tussle with Ripple, a blockchain-based payments
network, over its XRP token which it claims is a securities token. However, in
recent months, the securities regulator has also turned its attention to crypto
exchanges, dragging Binance and Coinbase to court over their crypto
asset “securities” offered on “unregistered” trading platforms.
However, it
appears the NFT industry is next in line. In the statement released on Monday,
the regulator noted that its findings show that NFTs offered by Impact Theory
were investment contracts and therefore securities.
In previous
cases, the regulator argued that tokens listed on crypto exchanges were
“securities” by citing the Howey Test. The Test is a technique used to
determine when a financial transaction qualifies as an “investment contract”
and should be regulated as a security dealing by the SEC. The regulator has
severally contended that transactions are securities when they seek to generate
returns for investors.
Are NFT ‘Securities’ When Sold?
In the new
case against Impact Theory, SEC alleged that the media company between October
and December 2021, marketed and sold three levels of NFTs termed as “Founder’s
Keys.” These tokens were reportedly categorized as “Legendary,” “Heroic,” and “Relentless.”
“The order
finds that Impact Theory encouraged potential investors to view the purchase of
a Founder’s Key as an investment into the business, stating that investors
would profit from their purchases if Impact Theory was successful in its
efforts,” SEC further explained. “Among other things, 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.”
However,
Impact Theory neither admitted to nor denied the findings, according to the
SEC’s statement. Nonetheless, the media company agreed to the regulatory agency’s
cease-and-desist order.
Furthermore,
the firm has agreed to get rid of all “Founder’s Keys” in its possession. It
will also publish a notice about the SEC’s order on its website and social
media platforms and eliminate any royalty that it might otherwise receive from
future secondary market transactions involving the NFTs”
Additionally,
the SEC said it ordered Impact Theory to create a “Fair Fund” so as to refund
investors who purchased NFTs during the period it marketed the tokens.
“Absent a
valid exemption, offerings of securities, in whatever form, must be
registered,” commented Antonia Apps, Director of the SEC’s New York Regional
Office. “Without registration, investors of all types are deprived of the
protections afforded them by the robust disclosures and other safeguards long
provided by our securities laws.”
ASIC suspends AFS license; FCA warns against 5 fraudulent firms; read today’s news nuggets.
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- Source: https://www.financemagnates.com//cryptocurrency/sec-goes-after-nfts-podcaster-to-shell-out-61m-over-securities-offerings/
