SEC Issues First Enforcement Action Targeting NFTs

U.S. regulators ordered a Los Angeles-based company that issued non-fungible tokens to compensate investors who bought the NFTs, arguing that the transactions were illegal unregistered securities offerings. It was the U.S. Securities and Exchange Commission’s first NFT-related enforcement action.

The SEC’s findings do not suggest regulators consider all NFTs to be securities, limiting the potential consequences of the action.

Impact Theory, a California-based media company, raked in nearly $30 million selling three tiers of NFT offerings the SEC deemed to be securities, according to a Monday statement from the markets regulator. The NFTs qualify as securities because Impact Theory’s team promised investors would profit off the collectibles, touting their “tremendous value,” according to an SEC order.

“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 effort,” the statement says.

Impact Theory has agreed to set up a fund to reimburse investors who purchased the NFTs and destroy any NFTs that remain in its possession. The company will also pay more than $6.1 million in penalties to federal regulators, according to the order.