SEC settles first NFT Enforcement Action against NFTs

The US Securities and Exchange Commission(SEC) has settled its first enforcement action against non-fungible tokens(NFTs), in a landmark case that could help determine if NFTs fall under SEC jurisdiction.

On Monday, the SEC charged Los Angeles-based Impact Theory with profiting from the sale of unregistered securities via NFTs. The company had encouraged investors to view NFT purchases as an investment into the business, stating that investors would profit from the purchase if Impact Theory was successful in its efforts.

Altogether, the company raised around US$30 million from its NFT sales.

Impact Theory has not admitted guilt or denied the allegations, but it has agreed to a cease and desist order, as well as aUS$6.1 million fine and to return all proceeds from NFT sales to investors.

Despite this, Impact Theory has also stated that it will continue to be active in the crypto industry, and to ensure that future digital assets will be of utility rather than for financial purposes.

While this is the first enforcement action that the SEC has taken against NFTs, US courts have heard NFT cases before.

Last year, the US Disctrict Court for the Southern District of New York heard a case where a group of NFT collectors sued Dapper Labs, alleging that the firm had earned hundreds of millions of dollars by selling unregistered securities.

While Dapper had motioned for the case to be dismissed, a judge ruled in February that NFTs could be considered securities since the value of NFTs could be tied to the success of the company.

It is unclear if the SEC will continue to pursue action against NFT issuers. In October last year, the SEC was supposedly looking into whether Yuga Labs, the creator of the massively popular Bored Ape Yacht Club NFT collection, was offering unregistered securities.

However, the enforcement action against Impact Theory has already drawn criticism from many members of the crypto community, who argue that the SEC’s argument of why Impact Theory’s NFTs are securities could also be applied to many other NFT projects.

Two SEC commissioners also dissented from the decision to charge Impact Theory, saying that the SEC should have addressed questions relating to guidance on NFT offerings.