Nifty Regulation

For the first time, the SEC has charged an NFT project with selling unregistered securities

The SEC is willing to parse what NFTs are and aren't securities

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SEC Chairman Gary Gensler speaks at a congressional hearing, raising first and speaking in the photo
SEC Chairman Gary Gensler has targeted crypto projects of all kinds.
Photo: Evelyn Hockstein (Reuters)

The US Securities and Exchange Commission (SEC) has brought its first enforcement action against a company for a non-fungible token (NFT) project. The violator in question is a Los Angeles-based media company called Impact Theory, which the federal securities regulator alleged sold NFTs that were actually unregistered securities.

In its lawsuit against Impact Theory, the SEC alleged that from October to December 2021 the company encouraged potential buyers of its NFTs to think of the tokens as investments in its future business. Impact Theory promised these buyers that it was “trying to build the next Disney.”


Without admitting or denying the charges, Impact Theory settled with the SEC for more than $6.1 million and will decommission its Founder’s Key NFTs and reimburse customers who bought them. Impact Theory had raised $30 million from hundreds of investors through the NFT sales.

“Absent a valid exemption, offerings of securities, in whatever form, must be registered,” said Antonia Apps, director of the SEC’s New York regional office, in a press release. “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.”


The lawsuit portends future action against NFT projects

Two of the five SEC commissioners dissented from the decision to charge Impact Theory. Republican Commissioners Hester Pierce and Mark Uyeda said that the SEC should have addressed questions relating to guidance on NFT offerings before bringing an NFT enforcement action.

The lawsuit portends future SEC enforcement actions against NFT projects. Before this, the most significant case related to NFT issuance was a class-action suit in New York against Dapper Labs, which accused them of selling unregistered securities. In February, a federal judge denied Dapper Lab’s attempt to dismiss the case.