The U.S. Securities and Exchange Commission (SEC) announced in an Aug. 28 press release that it had settled its first enforcement action related to non-fungible tokens (NFTs). SEC Commissioners Hester Peirce and Mark Uyeda dissented, saying that they disagreed with the SEC's application of the Howey test, their separate SEC statement said.
The SEC had charged Los Angeles-based Impact Theory with offering unregistered crypto asset securities in the form of NFTs and fined the company more than $6.1 million, the main press release said. In 2021, Impact Theory generated approximately $30 million from hundreds of investors who purchased "Founder's Keys" NFTs, the SEC said. Impact Theory did not admit or deny the SEC's findings but agreed to pay the fine.
"Because it is the first NFT settlement, this enforcement action raises many difficult questions," Peirce and Uyeda said in their dissent. "The Commission should have grappled with these questions long ago and offered guidance when NFTs first started proliferating. Nevertheless, having a discussion about NFTs now could help the Commission to approach the topic sensibly."
Peirce and Uyeda said that while they "believe strongly that adults should be able to spend their money as they choose," they understand the SEC's concern about the Impact Theory case. They described the concern as worrying about the "hype that entices people to spend almost $30 million for NFTs seemingly without having a clear idea about how they will use, enjoy, or profit from them."
However, they said, that concern "is not a sufficient basis to pull the matter into our jurisdiction." They noted that the SEC does not typically bring enforcement actions against individuals or companies that sell other items like paintings or watches with similar "vague promises" that the items will increase in value and result in profits for the purchaser.
Their questions include looking into how the SEC could categorize NFTs to clarify if and when securities laws apply to them and whether this enforcement action means that the SEC sees all NFT offerings as securities offerings.
