SEC Charges Impact Theory Over NFT Offerings as Unregistered Securities

Blockchain laws

The Securities and Exchange Commission (SEC) has announced charges against Impact Theory, LLC, a Los Angeles-based media and entertainment company, for orchestrating an unregistered digital asset offering. The offering was in the guise of non-fungible tokens (NFTs) referred to as the Founder’s Keys. Through this offering, Impact Theory amassed around $30 million from multiple investors, including those located within the United States.

The SEC order highlights that between October and December 2021, Impact Theory introduced three categories of NFTs – “Legendary,” “Heroic,” and “Relentless.” The company promoted these NFTs, suggesting that purchasing a Founder’s Key could be seen as a business investment. They conveyed that if Impact Theory flourished, the NFT owners would reap financial benefits. Among their promotions, they claimed they were on a mission to “build the next Disney” and promised “tremendous value” to the NFT owners if they succeeded. The SEC’s assessment is clear: the NFTs offered were indeed securities in the form of investment contracts. Consequently, Impact Theory contravened federal securities laws by selling these unregistered crypto securities to the public.

Antonia Apps, Director of the SEC’s New York Regional Office, emphasized the importance of registration unless there’s a legitimate exemption. “Without registration, investors are left vulnerable without the protection our securities laws offer,” Apps stated.

Without admitting any wrongdoing, Impact Theory has accepted a cease-and-desist order. They will pay over $6.1 million, which includes disgorgement, prejudgment interest, and a civil penalty. There’s also a provision for a Fair Fund to reimburse the injured investors. Furthermore, Impact Theory will destroy all Founder’s Keys they hold, announce the order on their platforms, and waive any future royalties from the secondary market transactions involving the Founder’s Keys.

The SEC’s probe was led by officials from the SEC’s New York Regional Office, with collaboration from various departments.

Implications for the Broader Crypto Industry:

This move by the SEC highlights a growing trend of regulatory scrutiny in the crypto space. When NFTs or other crypto assets are positioned as investment opportunities promising returns, they may be classified as securities. This means companies engaging in such activities must adhere to existing securities laws. The implications for the broader crypto industry are clear:

  1. Regulation is Catching Up: Companies in the crypto sphere must be diligent in ensuring their offerings, especially NFTs, do not cross into securities territory unless they are willing to adhere to the accompanying regulations.
  2. Transparency is Essential: Promises of returns or using language that hints at an investment can attract regulatory attention. Firms must be transparent and accurate in how they present their products to the public.
  3. Investor Protection: The SEC’s actions underscore its commitment to safeguarding investors in the ever-evolving crypto landscape. This serves as a reminder for companies to prioritize investor protection and ensure compliance with regulatory norms.

The relevant elements cited in the case:

The Order cited numerous public remarks made by Impact Theory to substantiate its determination that the KeyNFTs met the criteria of the Howey test. Specifically, the SEC identified:

Element 1: Financial Investment in a Business. It was clear to investors that buying KeyNFTs meant investing in the operations of Impact Theory. The company expressed its ambition to evolve as “the next Disney.” They even drew parallels for potential investors, suggesting that acquiring KeyNFTs was akin to seizing an opportunity with “Disney during its ‘Steamboat Willie’ phase.”

Element 2: Shared Venture. Impact Theory openly communicated its perspective that both the company and the KeyNFT investors, including its founders, would mutually benefit. They emphasized that their prospective gains were intrinsically interconnected.

Element 3: Anticipation of Returns. Public statements from Impact Theory, coupled with sentiments from potential and confirmed KeyNFT buyers, underscored a predominant belief in the “likely anticipation of returns” from KeyNFT acquisitions. For context, some investors compared the act of purchasing KeyNFTs to simultaneously “investing in giants like Disney, Call of Duty, and YouTube,” or likened it to giving “$20 to a young Mark Zuckerberg during his university days.”

Element 4: Returns Resulting from the Enterprise’s Endeavors. Impact Theory conveyed to its investors that the worth of KeyNFTs would hinge on the company’s initiatives. They planned to channel the funds from the KeyNFT sales towards “further development,” “expanding the team,” and “initiating more projects.”

Dissent from Commissioners Peirce and Uyeda on the Order

Upon the Order’s release, SEC Commissioners Hester Peirce and Mark Uyeda promptly shared a statement detailing their opposing stance. Their primary contention revolved around the categorization of Impact Theory’s NFTs as securities per the Howey test. Specifically, they were skeptical about the assertions by Impact Theory being deemed strong enough promises to entice investors with prospects of profit, driven by the company’s endeavors. Drawing a comparison, Peirce and Uyeda remarked that the SEC doesn’t customarily initiate enforcement actions against individuals selling items like watches, artwork, or collectibles, even if they accompany ambiguous pledges to enhance brand value, potentially boosting the resale value of those physical items.

Further, the duo pondered on the necessity of enforcing action even if the criteria of the Howey test were satisfied. They highlighted that typical responses to registration breaches involve a rescission proposition, an action already initiated by Impact Theory through their buy-back schemes. Additionally, they mentioned that Impact Theory had compensated investors with ETH equivalent to $7.7 million. It was also conceivable that other investors might have sold back their NFTs to the company.

Concluding their dissent, Peirce and Uyeda presented nine pivotal queries they believe should guide the SEC’s approach in shaping upcoming NFT regulatory and enforcement measures.


The SEC’s recent actions against Impact Theory and the subsequent dissent from Commissioners Peirce and Uyeda illuminate the complex and evolving landscape of cryptocurrency regulation, especially in the realm of NFTs. As the crypto domain continues its rapid expansion, defining the boundaries between digital assets, securities, and mere collectibles becomes increasingly crucial. The contrasting views within the SEC underscore the need for clear, consistent, and comprehensive guidelines for NFTs, ensuring both the protection of investors and fostering innovation. This case serves not only as a precedent for how the SEC may approach NFT-related matters in the future but also as a beacon for organizations navigating the murky waters of digital asset offerings. It’s clear that as the digital landscape evolves, so too will the regulatory framework that surrounds it.

Relevant Resources/Articles:

Doge and the Digital Realm: Navigating Non-Fungible Tokens in a World of Securities and Artistry

Do fungible gaming tokens constitute a security or an investment contract? A detailed analysis and framework




Legal Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. The content presented is not intended to be a substitute for professional legal, tax, or financial advice, nor should it be relied upon as such. Readers are encouraged to consult with their own attorney, CPA, and tax advisors to obtain specific guidance and advice tailored to their individual circumstances. No responsibility is assumed for any inaccuracies or errors in the information contained herein, and John Montague and Montague Law expressly disclaim any liability for any actions taken or not taken based on the information provided in this article.

Contact Info

Address: 5422 First Coast Highway
Suite #125
Amelia Island, FL 32034

Phone: 904-234-5653

More Articles