SEC takes action against NFTs
The SEC is now also taking action against NFTs. In the past, the US Securities and Exchange Commission had already targeted trading platforms and individual publishers of cryptocurrencies. A crypto lawyer warns of the further consequences of the new development.
SEC cracks down on NFTs
The SEC is now also taking action against NFTs. This development follows a legal dispute that the regulator conducted with the US media company Impact Theory .
The Los Angeles-based company reached a settlement with the Securities and Exchange Commission yesterday after it filed a lawsuit. The SEC accused Impact Theory of selling illegal securities in the form of NFTs.
This accusation is a novelty in the USA. Comparable allegations focused on cryptocurrencies and so far had nothing to do with digital certificates.
Impact Theory accepted a cease and desist order, according to a press release from the SEC. Accordingly, the company foregoes further income that would result from the sale of the in-house NFTs as part of royalty fees.
In addition, a fine of 6.1 million US dollars is due. Impact Theory is committed to destroying any NFTs from the affected Impact Theory Founder’s Key collection still in its possession.
The US company sold non-fungible tokens of the Ethereum blockchain under this title in three different stages from October 2021 to December of the same year. It generated proceeds equivalent to $30 million.
SEC justifies action with false promises
The SEC justifies its action against Impact Theory with deliberately made false promises. Potential investors were attracted by promising them enormous financial benefits.
“I’m going to make sure we do something that by any reasonable measure has overwhelming, ludicrous value to people ,” a senior Impact Theory executive told prospects, according to the SEC.
They also claimed to be building a company that would match the size of the media giant Disney.
“Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment in the company, stating that if Impact Theory was successful in its efforts, the investors would benefit from their purchases,” the regulator concluded.
According to the SEC, the procedure is similar to an investment contract. Such a company falls under the US Securities Act and would therefore have to be registered with the responsible supervisory authority SEC. That’s exactly what Impact Theory didn’t do.
Potentially injured investors seeking reimbursement of their expenses must be compensated through an Impact Theory Fair Fund.
That’s why a crypto lawyer warns
In a conversation with Cointelegraph, crypto lawyer Oskar Franklin Tan described the SEC’s actions as “problematic.” He does not agree with the supervisory authority’s conclusions. The SEC’s development is worrying because NFTs are just digital certificates that can be used in any conceivable way.
It is problematic to claim that all NFTs are securities because NFTs are a technology and can mean an infinite number of things: from a graphic to a health record to a property title.
Previously, the SEC had focused on centralized crypto exchanges and the issuers of individual cryptocurrencies where a specific company was responsible.
The US Securities and Exchange Commission may seek to use the success against Impact Theory as a precedent and therefore a reference in court in similar cases to gain control over the NFT market.
According to Tan, this is exactly what should not happen in order not to endanger further innovations. It is therefore important to create clear guidelines in the USA.
There is also resistance within the SEC. Commissioner Hester Peirce, known as Crypto Mom , together with her colleague Mark Uyeda, wrote a press release contradicting the SEC’s public representations .
The Impact Theory incident should not be viewed as illegal securities trading, as the company never described the NFTs as company shares or associated them with dividends. At most it is a case of fraud.
However, enforcement measures of this kind should be avoided if – as in this case – a compensation program that was started by the responsible company itself is already running. Impact Theory has been offering the buyback of Founder’s Key NFTs since December 2021.