Two commissioners at the US Securities and Exchange Commission (SEC) are criticizing their own agency for recently suing a company for securities law violations related to the sale of non-fungible tokens (NFTs).
The SEC announced formal charges earlier this week against Los Angeles-based entertainment company Impact Theory for allegedly offering NFTs as an “unregistered offering of crypto assets.”
The regulator says the company raised about $30 million after encouraging its followers to buy NFTs from a collection known as the “Founder’s Keys.”
However, SEC Commissioners Hester Peirce and Mark Uyeda disagreed with the enforcement action, noting that the NFTs were not shares of Impact Theory and did not generate any sort of dividend for the buyers.
“The handful of company and buyer statements cited in the warrant are not the kind of promises that are part of an investment contract. We do not routinely take enforcement action against people selling watches, paintings or collectibles along with vague promises to build the brand and thus increase the resale value of those tangible items.”
Peirce and Uyeda say the enforcement action raises “difficult questions” that should have been answered when NFTs first started spreading a few years ago.
“Is a securities law regime best suited to ensure that NFT buyers obtain the information they need before purchasing an NFT? What type of information do these buyers want? Would other regulatory frameworks be more appropriate?”
The commissioners are curious to see whether the SEC now considers previous NFT offerings to be securities offerings, and if so, what companies that have issued NFTs can do to comply.
Peirce and Uyeda also raise questions about the SEC settlement requiring Impact Theory to destroy the “Founder’s Keys” NFTs in its possession.
“What precedent does this set for future cases where the NFTs in question represent unique pieces of digital art or music?”
Impact Theory has agreed to halt NFT sales and pay out more than $6.1 million in fees and fines. The entertainment company neither admits nor denies the SEC’s allegations.
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