Impact Theory allegedly offered unregistered securities through its promotions
The US Securities and Exchange Commission (SEC) has charged media and entertainment company Impact Theory with executing sales of unregistered securities when the company sold investors nonfungible tokens (NFTs) from October through December 2021.
A Los Angeles-based entertainment and educational production company, Impact Theory allegedly raised nearly $30 million through sales of NFTs called Founder’s Keys. It “encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business,” according to the SEC, adding, “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 discovered that the NFTs were investment contracts, considered securities, which violates the Securities Act of 1933 because they were sold without registration. The government regulator issued Impact Theory a cease-and-desist order, which the company consented to.
The company was also ordered to pay over $6.1 million in disgorgement, interest, and civil penalties without admitting wrongdoing. A fund will also be developed to return the Founder’s Key NFT investments. The company must also destroy all Founder’s Keys in its control and publish a statement of the order on all its websites and social media. Impact Theory also cannot receive future royalties from secondary market sales of the NFT.
Impact Theory’s promises noted in the SEC order “are not the kinds of promises that form an investment contract.” Commissioners equated the promises to those made by NFT collectibles sellers. The SEC also proposed a list of nine questions the company must consider prior to seeking NFT topics.
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