The recent actions of Los Angeles-based conglomerate Impact Theory have triggered a wave of discussion encompassing both merit and concern. The latter emanated primarily from regulators, in this case, the Securities and Exchange Commission (SEC). The company is now under the lens after it purportedly engaged in the non-registered sale of non-fungible tokens (NFTs), deemed by the SEC as effectively being crypto asset securities.
Impact Theory’s recent venture, raising nearly $30 million through offering NFTs to a broad range of US investors, labeled these NFTs as ‘Founder’s Keys,’ distinctively categorized as ‘Legendary,’ ‘Heroic,’ and ‘Relentless.’ Pitched as a prospective investment in the company’s future, the company’s messaging suggested acquisition of a Founder’s Key mirrored a stake in the firm’s trajectory. It hinted toward considerable investment return should the company realize its quite ambitious aspirations, which included becoming an entertainment entity on par with industry giants such as Disney.
The SEC, however, moved to categorize these NFTs as investment contracts – rendering them securities in essence. That the company presented these to the public without the necessary registration has been seen as a breach of federal securities regulations.
The occurrence underscores the importance of regulation and creates a sense of urgency. Antonia Apps, chief of the SEC’s New York Regional Office, remarked on the requisite of registration. She noted the lack of which deprives investors of protections provided by securities laws requiring robust disclosures and other safeguards.
In the ensuing dialogue surrounding these developments, Impact Theory has neither admitted nor contested the SEC’s findings. But a cease-and-desist order has been conceded to, acknowledging their contravention of the Securities Act of 1933. As part of this settlement, a payout exceeding $6.1 million is now due from the company, encompassing disgorgement, pre-judgment interest, and a civil penalty.
A Fair Fund has also been established, aiming to reimburse the monies investors infused to acquire the NFTs. Impact Theory has further agreed to nullify all Founder’s Keys in their possession or control. The company is also obligated to publicize the order across its digital platforms and subsequently forgo any potential royalties from transactions involving the Founder’s Keys.