On 28 August 2023, in its first enforcement action for securities registration violations brought against an issuer of NFTs, the SEC settled with media and entertainment company, Impact Theory, LLC (Impact).  

The settlement order included findings that from 13 October 2021 to 6 December 2021, Impact sold non-fungible tokens called Founder’s Keys (KeyNFTs) raising approximately US$30 million. Broadly interpreting Howey, the SEC found that the NFTs were sold in investment contracts, based on the company’s public statements about the expected rise in value of the NFTs and its use of profits from sales to develop the company. 

SEC Commissioners Peirce and Uyeda were highly critical of the action, publishing a dissenting statement. While they acknowledged their “worry about the type of hype that entices people to spend almost US$30 million for NFTs” without having sufficient information, they assert that an improvident expenditure is “not a sufficient basis” for SEC jurisdiction. They noted that the SEC does not “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.” The Commissioners posed several critical questions about the SEC’s approach to NFTs including the implication of this enforcement action on other NFT issuances, whether the securities law is the appropriate law to ensure that NFT purchasers obtain proper disclosures, and whether the SEC will provide guidance to issuers to offer compliant offerings.

Josh Durham, law clerk, also contributed to this article.