The U.S. Securities and Exchange Commission ordered a Los Angeles-based company that issued non-fungible tokens to compensate investors who bought the NFTs, arguing that the transactions were illegal unregistered securities offerings.
The SEC has issued its first enforcement action targeting NFTS. The regulator ordered Impact Theory in L A based media company that raked in nearly $30 million from selling tiered NTS to compensate investors arguing that the transactions were illegal, unregistered securities offering. Impact theory has agreed to set up a fund to reimburse investors destroy remaining NFTS and they will pay a fine of $6.1 million. Wendy gonna toss this one off to you. What do you make of the S ecs first NFT enforcement action? Um We all knew that this was coming. The reason why we knew it's coming is when we're talking about NFTS, people like to call them digital assets or digital collectibles. But that's just really skirting around what an NFT actually is. It is a token, it is a little adorable little token that kind of just lives on that Blockchain. That's just kind of there just kind of chilling. Um But it really depends the way that these entities are set up and how they're using the NFTS because let's face it when we do talk about collectables. Um Again, I was an ebay seller, I would go to thrift stores, I would buy used designer vintage goods or things that I saw that were in style that I can, that I knew I was going to be able to flip because I knew I was going to be able to flip and make money off of them. Kind of makes you think. Is this a security? Is this not a security? Um, but in fact, it's just a tangible, a tangible good, but that's the kind of the way that I view NFT si, I literally view them as collectibles that you can buy and then you hope that they appreciate, but you're not 100% sure if they're gonna appreciate um for this particular um lawsuit. I, I forget exactly how the company went, went about it. Um I'm gonna do planning on doing a video on my channel about it, youtube crypto, go subscribe. Um But I do think it's very interesting. I think we're gonna see a lot of other NFT projects get hit and it's very important. If you do plan on launching a project, you probably should obtain some sort of legal advice. Um Just so you have some sort of guidance and just have some basic understanding of the law because again, you guys were in very, very uncharted territories. Will, what is your thought about these adorable little um single tokens that kind of just live on the Blockchain? Are they securities keys? As Zach would say, I like the Chays depending if they're penguins or not. No. OK. So I think this case specifically more refers to how this NFT rollout occurred. I did see some people including Zach B DC, who's sort of like the on change the last cycle talking about how this NF drop was, had some dubious parts about it. And that's why they saw this case going forward, right? This is the first one we've seen with an NFT. So there's that, on the other hand, looking at the descent from Hester and others at the SEC who were judging on this decision, they thought it was a little odd to come after a single NFT case. Why for the reasons when you just sort of laid out there, right? Like we have art markets, we have designer bag markets, people saw these things on street corners, so we're not going after them, but the SEC in this case decided to go after it. I think it does fit a longstanding pattern from the SEC that enforcement actions target select groups and select people where they can have easy case wins. And then that sets sort of like a precedent for the rest of the industry, right? They go after the ripple labs, they go after this NFT case, they go after library, they go after the ones where they think they can sort of win in the case of ripple labs. They have a lot of money. So I don't know if that was the best target because that one's been hold up in court for the better part of three years. The library one was sort of a slam dunk though, right. They, like, won that. And library didn't have enough money to go back and fight against them. So they've basically been on a social media campaign and I think with this sec one here, you know, it's an NFT market, they just had to, like put up with it, they had to pay discouragements and let it go. And that's not the case. Now for all these NFT creators out there, they have to think about these things a little harder than they were previously if that's good or bad. I don't know. I don't, I don't love the strategy. The SEC has been, you know, walking out for the last few years. I think we've all opined on that a lot in this show. Uh But there is something to saying, maybe we should have like a little bit more consumer protection with some of these new markets are popping up. Permission, less innovation is great, but that also means that you have permission, less ragging Zach permission list ruing. Is that a feature or a bug? Well, that's some crazy, that's a crazy little turn of phrase. You just made. That's some crazy stuff right there. Yeah, I mean, this is the sec sort of cherry picking something that again to your point. They're most likely to win, right? This is something that you get this token, you're entitled to all these benefits you're entitled to. I don't know, whatever the language is, the profit based on the expectation of others efforts, whatever that legal uh phrasing is, um again, based on these rewards that were very much linked to this particular project. So is this all projects? No, every NFD project does its own thing in terms of road map, in terms of additional perks. Um But I think they chose this one saying, hey, this 1 may be more security like than some of the other projects out there um that don't entitle holders to additional benefits. And I think, you know, again, it's gonna be different for each particular case. Um Sorry, each for each particular project. But this case, the SEC thinks at least is gonna be more favorable toward its stance on the matter. And it's gonna be interesting to see how it plays out Jenna. Sorry. Yeah, I think it's important to note that two out of the five sec commissioners um were involved in the dissent. So it wasn't just Tester Purse, it was also mark who pointed out some of the points back that you and will both made. Um And the sticking point, what it sounds like when I read this case is that language, they allegedly had language that, you know, promised people who bought these NFTS future returns. Um But there was an interesting tweet that I wanted to bring up, it's by lawyer and ex sec special counsel, Herin Wang. She said that this is a naked grab for power given the title of the SEC S press release. So she pointed to the fact that in the press release, the SEC named NFTS, instead of just saying that this company violated securities laws and that's not consistent with other press releases that the SEC has launched, which would give just, you know, the general viewer, the general reader of this press release, the idea that NFTS are now unregistered securities and that you should not participate in NFTS, not just this project, but NFTS as a whole. And I thought that was an interesting point and I wonder if, um, their communications would be so calculated? I wonder. We, yeah, we'll just continue to wonder.