NFT creator agrees to pay $6.1 million settlement in first-of-its-kind SEC case

2023-08-30 06:20

One NFT creator just made history this week, but likely not in the way it

One NFT creator just made history this week, but likely not in the way it envisioned.

On Monday, the U.S. Securities and Exchange Commission (SEC) announced that it was charging a media company called Impact Theory with conducting an unregistered security offering of a crypto asset.

This is not entirely new ground, especially as the SEC has started getting more serious about cryptocurrency enforcement over the past year. However, as TechCrunch points out, this is the very first time the SEC has gone after crypto asset securities in the form of non-fungible tokens (NFTs).

According to the SEC, Impact Theory raised more than $30 million from the NFT offering, which occurred between October and December 2021. Through the company's NFTs, called Founder’s Keys, Impact Theory offered three investment level tiers: “Legendary,” “Heroic,” and “Relentless.” Impact Theory framed the NFT purchase as an investment into the company and promoted how acquiring an NFT could lead to profit if the company was successful.

"Imagine that you could've gotten in on Disney when they were doing Steamboat Willie," the company claimed.

The SEC says Impact Theory agreed to a cease-and-desist order saying it violated the Securities Act of 1933, although it did not admit to or deny the findings of the investigation. The company will pay more than $6.1 million as a penalty, destroy the Founder's Keys in their possession, agree not to profit off future resale of existing NFTs, and create a fund to compensate injured investors.

ZachXBT, a prominent crypto and NFT scam investigator, had originally warned of the project back when it was live in late 2021.

In a post on X, Impact Theory co-founder Tom Bilyeu released a statement about its settlement with the SEC by continuing to promote future NFT sales. However, according to Bilyeu, the company will do so by following SEC rules and no longer promote NFTs as financial assets, but "collectibles with utility."

The NFT market as a whole has continued to collapse over the past year, as even the industry's most popular projects take a nosedive on the aftermarkets. Many have lost money on their NFT investments. Most notably, a group of Bored Ape Yacht Club investors recently filed a lawsuit against 30 defendants over the "misleadingly promoted" NFTs.