The U.S. Securities and Exchange Commission (SEC) has issued an Order Instituting Cease-and-Desist Proceedings against Impact Theory, LLC. The bone of contention is the company’s digital collectible offering, termed as Founder’s Keys. According to the SEC, Impact Theory allegedly breached Sections 5(a) and 5(c) of the Securities Act. The offense? Offering and vending NFTs without either a filed registration statement in place with the SEC or availing an exemption from such a registration.
Delving deeper into the investigation, the SEC discovered that Impact Theory had offered and traded these NFTs in exchange for Ether, positioning them as a golden ticket for investors to exclusive content and one-of-a-kind experiences. Moreover, the firm implied that these NFTs would grow in value over time. The main issue arose when the SEC viewed these NFTs as securities, concluding that Impact Theory did not adhere to the mandatory registration requirements of the Securities Act.
However, instead of dragging the matter through courtrooms, Impact Theory presented an Offer of Settlement. The SEC, in its discretion, accepted this offer. This means that the matter has been resolved sans any protracted litigation.
The terms of this settlement dictate that Impact Theory must refrain from any current or future breaches of Sections 5(a) and 5(c) of the Securities Act. To add weight to their commitment, they have consented to pay disgorgement of $5,120,718.27, prejudgment interest of $483,195.90, and a civil money penalty of $500,000 to the Securities and Exchange Commission.
But that’s not where the matter rests. Impact Theory will be taking corrective actions to ensure future compliance. These include onboarding an independent consultant who will meticulously review the firm’s alignment with securities regulations. They are also mandated to offer proof of adherence to the undertakings listed in the Order. Moreover, the company is to facilitate the SEC staff in devising and executing a distribution strategy for the impacted investors.
A further stipulation in the Order mandates Impact Theory to supply a compliance certification relating to the Order’s undertakings. This, coupled with the necessary supporting documentation, is to be submitted to the Assistant Regional Director of the Division of Enforcement within two months after the fulfillment of the said undertakings.
The underpinnings of this SEC Order go beyond just one company. It underscores the pressing need for organizations to be diligent when engaging in the sale and offer of digital assets. The regulatory body is sending a clear message: Digital assets, spanning cryptocurrencies to NFTs, can fall under the securities category under particular scenarios. Any firm venturing into this space must, therefore, ensure they are on the right side of the Securities Act.
In a nutshell, this Order not only reflects the SEC’s commitment to maintaining the integrity of the digital asset domain but also serves as a cautionary tale. As the digital realm, spearheaded by blockchain and cryptocurrencies, continues its ascent, one can expect the SEC’s eagle-eyed scrutiny to be a steadfast presence, safeguarding the interests of investors and the market at large.
Header image: founderskey.io
