[NEWS] US SEC files lawsuit over NFTs as unregistered securities, first case

On the 28th, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Impact Theory, a media and entertainment company headquartered in Los Angeles, for violating securities laws.

The SEC claims that the company sold unregistered securities under the name of NFTs. This is the first time that the SEC has taken legal action against NFTs as securities.

From October to December 2021, Impact sold NFTs called "Founder's Key," which consisted of three layers: "Legendary," "Heroic," and "Relentless."

At the time, Impact emphasized that it was "trying to build an industry giant like Disney," and encouraged investors to believe that purchasing Founder's Key would lead to business investment. It was also explained that if the company's project was successful, investors would be able to make a profit through the NFTs they purchased.

Through this sale, Impact reportedly raised approximately $30 million (approximately 4.4 billion yen) from hundreds of investors across the United States.

The SEC found that this was subject to the Howey test, which determines whether the investor had an expectation of receiving a benefit from a third party.

Antonia Apps, director of the SEC's New York District Office, said, "Unless there is a valid exemption, any form of securities offering must be registered with the SEC," emphasizing that this is a necessary measure from the perspective of investor protection.

At the same time, the SEC issued an order requiring Impact to pay a fine of more than $6.1 million (890 million yen) in damages.

The SEC explained that it had agreed with Impact to establish a fund to provide relief to investors who were allegedly harmed, and to destroy the Founders Keys held by the company.

Details of the lawsuit will be made public on Impact's website, etc., and the company will not receive royalties from trading Founders Keys in the secondary market.

This SEC lawsuit has shown that not only cryptocurrencies but also NFTs may be considered to be securities and be considered to violate securities laws. However, there are also voices of disapproval of this measure within the SEC.

Commissioners Hester Peirce and Mark Uyeda, known as "Crypto Moms," said, "We believe this case does not meet the requirements of the Howey test and is not a legitimate decision, and we express our opposition to it," and "This issue will cause major problems in the future."

The two argued that purchasing NFTs does not directly lead to the payment of dividends. They objected to this measure, saying that the SEC does not routinely enforce against businesses that claim to increase the value of tangible assets such as watches and paintings.

Reference:SEC announcement, opposition
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