The US Securities and Exchange Commission (SEC) has taken legal action against a Los Angeles-based media and entertainment firm for unlawfully vending cryptocurrencies that the regulatory agency deems to be securities.

SEC Accusations Against Impact Theory

Specifically, the SEC has accused Impact Theory of breaching the registration requirements set forth by the Securities Act of 1933.

According to an official statement from the SEC on Monday, the company allegedly sold non-fungible tokens (NFTs) without proper registration or exemptions.

The SEC asserts that Impact Theory garnered around $30 million from numerous investors, including some in the US.

This was achieved through the sale of three varieties of NFTs named Founder's Keys between the months of October and December in 2021.

These NFTs were intended to provide access to exclusive content and advantages from Impact Theory, a company aspiring to become "the next Disney."

The SEC contends that Impact Theory marketed these NFTs as an investment opportunity, with the pledge that investors would gain from their purchases in case the company achieved success.

The agency argues that these NFTs fulfill the criteria of investment contracts and hence classify as securities under the Howey test, a legal framework employed to ascertain whether an asset qualifies as a security.

Response from Impact Theory

According to the SEC's order, Impact Theory has consented to address the allegations and settle by paying over $6.1 million encompassing damages, interest, and penalties.

Importantly, the company neither accepts nor refutes the findings.

Dissent from Within the SEC

SEC Commissioners Hester M. Peirce and Mark T. Uyeda have released a contrasting statement, questioning the SEC's application of the Howey analysis to NFTs.

They have raised broader concerns about the Commission's approach to this emergent asset class.

Peirce and Uyeda acknowledge the SEC's unease regarding the excitement around NFTs, which resulted in a nearly $30 million investment without a clear comprehension of the asset's utility or profitability.

Nonetheless, they maintain that these worries don't substantiate SEC's jurisdiction.

They said:

"We do not routinely bring enforcement actions against people that sell watches, paintings, or collectibles along with vague promises to build the brand and thus increase the resale value of those tangible items."

They highlight that Impact Theory's assurances don't align with the type that would establish an investment contract within securities laws.

The dissenting Commissioners urge the SEC to offer guidance on NFTs well before taking enforcement measures.

They present a series of questions that the Commission should address:

• How should NFTs be classified for the purpose of applying securities laws, considering their diverse applications and rights?
• What guidance can the SEC provide NFT creators concerning potential intersections with securities laws?
• How should recent legislative endeavors in crypto regulation influence the SEC's stance on NFTs?
• Is a securities law framework the optimal approach to guarantee necessary information for NFT buyers? Are alternative regulatory frameworks more suitable?
• How can SEC registration prerequisites be adjusted for NFTs without excessive costs?
• Does this action imply the SEC's classification of all previous NFT offerings as securities? Will specific guidance be issued for those issuing NFTs?
• What constraints should be imposed on secondary market sales of NFTs marketed as investment contracts?
• The settlement involves a clause mandating the issuer to erase NFTs in their possession and eliminate any royalties. What precedent does this set for future cases involving NFTs representing unique digital art or music?