The Securities & Exchange Commission today charged Impact Theory, LLC, a media & entertainment company headquartered in Los Angeles, with conducting an unregistered offering of crypto asset securities in the form of purported non-fungible tokens (NFTs). Impact Theory raised approximately $30 million from hundreds of investors, including investors across the United States, through the offering.
According to the SEC’s order, from October to December 2021, Impact Theory offered & sold three tiers of NFTs, known as Founder’s Keys, which Impact Theory called “Legendary,” “Heroic,” & “Relentless.” The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts. Among other things, Impact Theory emphasized that it was “trying to build the next Disney,” &, if successful, it would deliver “tremendous value” to Founder’s Key purchasers. The order finds that the NFTs offered & sold to investors were investment contracts & therefore securities. Accordingly, Impact Theory violated the federal securities laws by offering & selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.
“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. “Without registration, investors of all types are deprived of the protections afforded them by the robust disclosures & other safeguards long provided by our securities laws.”
Without admitting or denying the SEC’s findings, Impact Theory agreed to a cease-&-desist order finding that it violated registration provisions of the Securities Act of 1933 & ordering it to pay a combined total of more than $6.1 million in disgorgement, prejudgment interest, & a civil penalty. The order also establishes a Fair Fund to return monies that injured investors paid to purchase the NFTs. Impact Theory agreed to destroy all Founder’s Keys in its possession or control, publish notice of the order on its websites & social media channels, & eliminate any royalty that Impact Theory might otherwise receive from future secondary market transactions involving the Founder’s Keys.
The SEC’s investigation was conducted by Benjamin Mishkin, Jessica Quinn, & Judith Weinstock of the SEC’s New York Regional Office. Hane L. Kim of the Division of Examinations, Gwen Licardo, Pamela Sawhney, & Mark R. Sylvester of the Enforcement Division’s Crypto Assets & Cyber Unit (CACU) & Carmen Taveras Alam, Ignacio Franceschelli, & Joshua Mallett of the Division of Economic & Risk Analysis provided assistance. The investigation was supervised by Sheldon Pollock, David Hirsch, & Jorge Tenreiro.