Through its pursuits of Ripple (XRP) and Coinbase, it’s now common knowledge that the US Securities and Exchange Commission (SEC) is a crypto hater.

However, in a legal first, the organisation has now classified the sale of an NFT collection as an unregistered securities offering.

The NFT collection in question is entitled ‘Founder’s Key,’ which was developed by Impact Theory, an LA-based media company co-founded by influencer and entrepreneur Tom Bilyeu.

The SEC Complaints 

The SEC’s complaints related to the collection’s October 2021 launch, where across the 2 months following, Impact Theory actively promoted its Founder’s Keys NFTs- which came in ‘Legendary,’ ‘Heroic,’ and ‘Relentless’ tiers- as direct investment opportunities in the company. 

In conjunction with what we learnt about the Howey Test throughout its ongoing pursuit of Ripple and its XRP token, the SEC was primarily concerned with how the assets were marketed…

Or by the letter of the law, how they elicited an ‘expectation of profits,’ whilst also satisfying the three other elements of the test. 

This is because Impact Theory promoted its plans to use the revenue from the NFT sales towards its grand vision to “build the next Disney” through “development,” “bringing on more team,” and “creating more projects”. 

As stated in the court ruling, this even included an Impact Theory team likening the opportunity to “getting in on Disney when they were doing Steamboat Willie”. 

In turn, this ‘certified’ unregistered securities offering was said to raise approximately $30 million from a diverse range of investors. 

The SEC Ruling

Through Impact Theory’s particular marketing angle, the NFT sales were ruled to satisfy the Howey Test, therefore making them unlicensed securities offerings. 

Such ruling then left Impact Theory with many penalties to pay, including a cease-and-desist order and fines worth $6.1 million. It also agreed to destroy all the NFTs it still had control over, as well as waive any future royalties it may receive through secondary sales. 

Whilst doing so, Impact Theory must publish the order across their online platforms, as well as set up a ‘Fair Fund’ initiative in order for funds to be returned to affected investors. 

For the remaining ‘Founder’s Key’ NFTs, their OpenSea floor price of 0.039 ETH (around $64) hasn’t appeared to be affected by the court ruling. 

Quite disturbingly, the case has left the door wide open when it comes to the destiny of the 80,000+ other NFT collections, as the SEC hasn’t properly stated its stance, nor intention, when it comes to NFTs being unregistered securities. 

That being said, we could perhaps infer that collections that haven’t marketed themselves as ‘profit expectant’- that is, those of the ‘collectible’ or entry ticket’ variety- may be in the clear, whilst those with clear investment or pumping intentions may face the same repercussions as Impact Theory.

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This article is intended for educational purposes and is not financial advice