LA Company Receives the First SEC NFT-Related Fine

The SEC has settled with a LA media company for $6 million over its NFTs that were deemed unregistered securities. The case was the first NFT fine issued by SEC. Impact Theory, co-founded by social media star Tom Bilyeu, also agreed to destroy all of its Founder's Key NFTs as part of the settlement. The Founder's Key NFTs, which were still listed on Opensea as of Monday noon, had a minimum price of 0.039 Ethereum, or about $64. The NFT collection had generated $5.4 million in total volume since its launch, according to Opensea.

On Monday, the SEC revealed the claims and settlement, stating that the company obtained roughly $30 million from a wide group of investors, some of whom were based in the United States.

According to the SEC's accusations, Impact Theory introduced and sold three distinct NFT tiers called Founder's Keys between October and December 2021, designated as "Legendary," "Heroic," and "Relentless." According to the SEC's findings, Impact Theory extensively pushed these NFTs to potential investors as a direct investment opportunity in the company. They indicated that obtaining a Founder's Key would yield rewards if the company succeeded, frequently drawing analogies to their aim to emulate the success trajectory of large entertainment conglomerates such as Disney.

According to the SEC, these NFTs are now security investment contracts. Impact Theory, by extension, made an unregistered securities offering when it sold the NFTs.

Impact Theory has agreed to a cease-and-desist order in response to the SEC's findings, without admitting or challenging the claims. This means that the corporation violated the Securities Act of 1933's registration procedures, resulting in a fine of more than $6.1 million.

Disgorgement, prejudgment interest, and a civil penalty are all part of the settlement. A Fair Fund will also be established to enable the return of funds to affected investors. The corporation must also destroy all Founder's Keys in their possession, advertise the order on their internet channels, and waive all future secondary market transaction royalties associated with the Founder's Keys.

The investigation was led by the SEC's New York Regional Office, with assistance from the Enforcement Division's Crypto Assets and Cyber Unit (CACU) and the Division of Economic and Risk Analysis.