The Securities and Exchange Commission charged a Los Angeles-based podcasting studio on Monday over "conducting an unregistered offering of crypto asset securities," marking the agency's first enforcement action involving an NFT project.
Impact Theory raised roughly $30 million from hundreds of investors, the SEC said. The company is co-founded by Tom Bilyeu, host of a YouTube show and podcast also called Impact Theory. Bilyeu's YouTube channel has more than 3.7 million subscribers, and previous guests have included actor Matthew McConaughey.
The company "encouraged potential investors to view the purchase of a Founders Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts," the SEC said. "The order finds that the NFTs offered and sold to investors were investment contracts and therefore securities."
At least one Impact Theory Founder's Key NFT collection listed on OpenSea has generated about $5.4 million in trading volume. The collection was created in late 2021, according to OpenSea.
Paying penalties and interests
The SEC said that while Impact Theory has not admitted or denied the agency's findings, it agreed to a "cease-and-desist order" connected to violating the Securities Act of 1933 and an order to pay $6.1 million in penalties and interest.
Impact Theory will destroy Founders Keys NFTs in its "possession or control," in addition to posting a notice on its website and across its social media channels, the SEC added.
Republican Commissioners Hester Peirce and Mark Uyeda criticized the agency’s move and said it raised “larger questions with which the Commission should grapple before bringing additional NFT cases.”
They also said they disagreed with how the Howey Test was applied. The SEC uses the Howey Test, a 1946 U.S. Supreme Court case, to help determine whether transactions are investment contracts and subject to securities laws.
"The handful of company and purchaser statements cited by the order are not the kinds of promises that form an investment contract,” Peirce and Uyeda said in a statement. “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.”
Updated at 12:15 p.m. to include comments from SEC commissioners
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