Impact Theory's "Founder's Keys" is the first NFT project in history to be charged by the SEC with "unregistered securities".

On August 28th, the SEC (Securities and Exchange Commission) charged Impact Theory, LLC, a media and entertainment company based in Los Angeles, with conducting unregistered securities offerings of encrypted assets in the form of NFTs.

Facing the SEC's charges, Impact Theory, LLC accepted a cease-and-desist order without admitting or denying the SEC's findings. The order found that the company violated registration provisions of the Securities Act of 1933 and ordered it to pay over $6.1 million in disgorgement, prejudgment interest, and civil penalties, with the disgorgement to be returned to harmed investors through the establishment of a fair fund. Additionally, Impact Theory agreed to destroy all of their owned "Founder's Keys" NFTs, post notices about the order on their website and social media, and waive any potential royalty income from future secondary market transactions involving "Founder's Keys".

"Founder's Keys" Why is it facing accusations of "unregistered securities"?

SEC determines that "Founder's Keys" NFT is offered and sold as an investment contract and security based on the following facts and circumstances:

From October 13, 2021 to December 6, 2021, Impact Theory raised approximately $29.9 million from hundreds of investors (including investors from across the United States) through the issuance of the NFT series "Founder's Keys".

This series was released in three different equity levels, "Legendary", "Heroic", and "Relentless", and sold at different prices.

Before the release of "Founder's Keys", Impact Theory held several voice broadcasts on Discord, and then uploaded the recordings of these voice broadcasts to its own Discord channel, and shared the information of these publicly available recordings on its official website and social media. Impact Theory also released recordings of other speaking events on YouTube and participated in public interviews on news and social media to promote "Founder's Keys".

Through these public announcements, Impact Theory has attracted potential investors to view the purchase of "Founder's Keys" NFTs as an investment in their business. They have stated that if their efforts are successful, investors will profit from purchasing "Founder's Keys" NFTs. In particular, Impact Theory emphasizes that they are striving to "build the next Disney" and if successful, will bring "enormous value" to the purchasers of "Founder's Keys" NFTs, with future value far exceeding their purchase price. Impact Theory has explained this in the following ways:

If you pay 1.5 (ETH), you will earn more. So no one will just take a look at this project and say, 'Sorry, buddy, I think this thing is worthless.' I am very bullish about this and I will do everything I can to make sure what I say is right.

This project is called Impact Theory 'Founder's Keys'. We like to say that it unlocks the future of everything we are currently doing as a company... When I look at NFTs seriously, I realize that what it can do for you is reward your community. For someone like me who is trying to build the next Disney, what you need is a thriving community. Therefore, we believe that this is a huge way for our community to gain tremendous value from what we are building.

"Now, as we are building this IP, imagine that when Disney made 'Steamboat Willie', you could have had the opportunity to participate in Disney. This is our view of legendary level. Frankly, this is also our view of our first NFT series."

Impact Theory also emphasizes that the company's efforts will achieve the values they claim. Impact Theory will use the proceeds from sales to "develop," "recruit more talent to join the team," and "create more projects," as well as:

"But of course, I will ensure that we do something that provides astonishing value to people by any reasonable standard."

"The key information I hope you can get is that there will be many cool things happening in the next 18 to 24 months, which is only a small part of what will happen in the next five years. The reason we only sell in the hype of the next 18 to 24 months is because I want you to get 90% of the economic value of everything we will do in the longer term. The only way to do this is to sell and price based solely on what we do in the short term, which will allow you to enjoy huge gains."

"We will use this money for "development", "bringing in more talent to join the team", and "creating more projects" to ensure that we provide amazing value. Until people laugh and can't believe they spent money before - you know - regardless of which level of NFT they hold, they will receive all of these values - until there is such a feeling - we have been injecting value into NFTs."

Additionally, Impact Theory has publicly shared the viewpoint that the wealth of the purchasers of "Founder's Keys" NFTs, Impact Theory, and the founder of Impact Theory are all tied together.

Our goal is to ensure that as Impact Theory becomes richer, as the founder of Impact Theory becomes richer, as the members of Impact Theory become richer, and as you, the NFT buyers, become richer. That's why we are so actively supporting NFT.

NFT is a mechanism that allows communities to derive economic value from the development of companies they support.

The above comments have led many "Founder's Keys" NFT buyers to express in their Discord that they believe purchasing "Founder's Keys" NFTs is an investment in Impact Theory company. As Impact Theory gradually advances its project development, it can bring appreciation to "Founder's Keys" NFTs:

"This is like being invited to invest in a thriving company that is only in its A round of financing."

This is like investing $10,000 with an upside potential of $300,000, but with only a small amount of risk.

"Everyone here is a crab eater! Buying 'Founder's Keys' NFT is like investing in Disney, Call of Duty, and YouTube at the same time."

"There has never been such an amazing return on investment. You are not investing in some 'Founder's Keys' NFT or PNG images, but in the Impact Theory team. This unprecedented opportunity is like giving $20 to Mark Zuckerberg in his dorm room."

Old players in the NFT industry should all feel helpless and bitter after reading the above content - "promising to use the sales revenue from issuing NFTs to build the brand", "NFT is a way for the community to benefit from the team's efforts", "building the next Disney", "buying NFTs is like investing in a startup company/emerging brand"... It's not about how many NFT projects have said these things, but how many NFT projects haven't said these things...

Will NFTs face significant negative factors?

Two SEC commissioners, Hester M. Peirce and Mark T. Uyeda, have objected to the SEC's first-ever enforcement action against NFTs, in part due to disagreement with the application of the Howey test. These commissioners emphasized that NFTs are not company stocks and do not generate any type of dividends for buyers. In addition, Impact Theory implemented a buyback plan in December 2021 and August 2022, repurchasing "Founder's Keys" NFTs purchased on the primary or secondary market, totaling 2,936 and returning approximately $7.7 million worth of ETH to investors. Even if the NFT sales here fully comply with the Howey test, is it really worth enforcing such an action when it may be feasible for the project to continue buying back buyers' NFTs?

@Orlando_btc believes that the SEC's decision to settle with Impact Theory without admitting or denying the allegations has a reason. Compared to FT, NFTs are more like collectibles such as Pokemon cards, sneakers, or watches, so they may have stronger arguments in terms of membership rights, consumption, and utility, which will still bring many complex issues related to securities law.

Impact Theory is a Crypto-focused company. They have a mainstream brand completely separate from Crypto/NFT, so they may be willing to pay hefty fines, not admitting to doing anything wrong, and then leave. This is where the SEC is smart - choosing a defendant with no strong motivation to fight back, avoiding tough nuts like Yuga Labs, and easily claiming victory in regulating NFTs. However, it can also be said that the SEC has finally started to crack down on NFTs, and Yuga Labs may gradually encounter troubles like Coinbase.

For most NFT teams, please do not promote your projects like you would promote equity. Although many lawyers may have already made this suggestion to NFT project founders, for many of them, this advice may still be news.

Although this may be the biggest NFT news of the year, the market currently has no reaction... There is not so much panic in the short term, nor is there so much optimism in the long term. Commissioners Hester M. Peirce and Mark T. Uyeda raised 9 questions about NFTs in their dissenting statement, and the regulatory compliance of NFTs has just begun.

Conclusion

Impact Theory founder @TomBilyeu has announced on Twitter that the company has reached a settlement with the SEC, expressing excitement to put the investigation behind them and focus on the future of their business and community. Tom even gave a shoutout to their NFT project "Kyzen". Tom seems to have something in common with Su Zhu, both eternal optimists.

SEC's shotgun is finally aimed at NFT, @garyvee, @frankdegods and other big players are probably going to sneeze a lot today...

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia