Impact Theory, LLC, a Los Angeles-based media and entertainment company, has been accused by the Securities and Exchange Commission (SEC) with making an unregistered sale of crypto asset securities under the pretence of non-fungible tokens (NFTs). The organisation is currently being investigated for its operations between October and December 2021, after raising an estimated $30 million from a variety of investors, including Americans.According to the SEC’s decision, three NFT categories known as Founder’s Keys were introduced by Impact Theory. The labels on these read “Legendary,” “Heroic,” and “Relentless.”
The company presented these NFTs as an investment in its business. Investors were misled into thinking that if Impact Theory’s ventures succeeded, their investments would result in returns. This perception was reinforced by the company’s bold claim that it was “trying to build the next Disney” and its assurances that owners of Founder’s Keys would receive “tremendous value.” These NFTs were classified as securities by the SEC because it found that they were essentially investment contracts. Because Impact Theory issued and sold these securities without registering, their acts were in contravention of federal securities laws.
According to Antonia Apps, Director of the SEC’s New York Regional Office, “offerings of securities, in whatever form, must be registered absent a valid exemption.” In order to ensure that investors receive the required safeguards mandated by securities laws, she emphasised the significance of registration.
Without acknowledging or disputing the SEC’s conclusions, Impact Theory has agreed to a cease-and-desist order in response to the accusations. The company’s violation of the Securities Act of 1933’s registration requirements is acknowledged by this order. A total of approximately $6.1 million has been ordered to be paid by the company, which consists of disgorgement, prejudgment interest, and a civil penalty. A Fair Fund will also be formed to pay back the investors who bought the NFTs. Impact Theory has also agreed to forfeit any royalties from future secondary market transactions involving the Founder’s Keys, destroy all Founder’s Keys in its possession, and make the order known on all of its digital channels.
ZachXBT, a crypto expert, had raised doubt regarding the project in 2021. He outlined potential problems with the project’s financial objectives and criticised its plan in a series of tweets dated October 14. He emphasised that the company would still raise about $33 million even if NFT pricing fell. He also poked fun at the company’s plan, saying that although one half of its roadmap was focused on general entrepreneurial events, the other half was focused on selling more NFTs. In response to ZachXBT’s critique, Tom Bilyeu, presumably from Impact Theory, acknowledged the necessity of building a reputation in the NFT area through consistent behaviour. With help from different divisions, a team from the SEC’s New York Regional Office led the investigation.