SEC Charges LA-Based Impact Theory Over Unregistered Securities

SEC Charges LA-Based Impact Theory Over Unregistered Securities

The US SEC charged Impact Theory with the “unregistered offering of crypto asset securities.” The LA-based entertainment company has paid a $6 million settlement following the charges.

On Monday, the SEC announced charging the LA-based Impact Theory with an unregistered securities offering. The agency claims Impact’s 2021 NFT launch falls under an unregistered securities offering.

SEC: Impact Theory’s NFT Launch Is an Investment Contract

In a press release, the SEC claimed the company conducted “an unregistered offering of crypto asset securities in the form of purported non-fungible tokens (NFTs).” According to the SEC, Impact Theory raised approximately $30 million from hundreds of investors through its 2021 offering.

The securities agency claims that from October to December 2021, Impact offered and sold three tiers of NFTs, known as Founder’s Key, which the company called “Legendary,” “Heroic,” and “Relentless.” The press release explains 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 were successful in its efforts.” The company allegedly stated that it was “trying to build the next Disney,” and if successful, would deliver “tremendous value” to Founder’s Key purchasers. 

The SEC’s order, therefore, found that Impact’s NFT sales to investors were investment contracts and, thus, securities. The securities agency established that Impact Theory violated federal securities laws by offering and selling these NFTs to the public without the necessary registration. 

Antonia Apps, Director of the SEC’s New York Regional Office, said:

“Absent a valid exemption, offerings of securities, in whatever form, must be registered.”


“Without registration, investors of all types are deprived of the protections afforded them by the robust disclosures and other safeguards long provided by our securities laws.”

 Impact Theory Settles with the SEC

Impact Theory agreed to a cease-and-desist order in a settlement agreement, finding it violated the Securities Act of 1913. Without admitting or denying the agency’s findings, Impact Theory also agreed to pay $6.1 million in “disgorgement, prejudgement interest, and a civil penalty.” 

The company further agreed to destroy all Founder’s Keys in its possession or control, publish a notice of the SEC’s order on its website and all social media channels, and eliminate royalties that it might receive from future secondary market sales involving the NFTs. The SEC’s order also established a “Fair Fund” to return funds investors paid to buy the Founder’s Keys. 

The order against Impact Theory is the first NFT enforcement action the SEC has brought. In a statement, SEC Commissioners Hester Peirce and Mark Uyeda disagreed with the SEC’s claims.

They said:

“We dissented in part because we disagreed with the application of the Howey analysis. Regardless of what one thinks of the Howey analysis, this matter raises larger questions with which the Commission should grapple before bringing additional NFT cases.”

The Commissioners added:

“We understand why the Commission was concerned about this NFT sale. Even though we believe strongly that adults should be able to spend their money as they choose, we share our colleagues’ worry about the type of hype that entices people to spend almost $30 million for NFTs seemingly without having a clear idea about how they will use, enjoy, or profit from them.

This legitimate concern, however, is not a sufficient basis to pull the matter into our jurisdiction. The handful of company and purchaser statements cited by the order are not the kinds of promises that form an investment contract. 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.”

 Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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