SEC Commissioners push back against NFT enforcement action

US Securities and Exchange Commissioners Mark Uyeda and Hester Peirce dissented against an enforcement brought by the agency on NFT sales deemed securities. 

The SEC on Monday charged a previously relatively obscure collection, Impact Theory, for its NFT launch, claiming that the NFTs were unregistered securities. The launch raised about $30 million, the SEC said. 

Pierce and Uyeda disagreed, with both commissioners saying the NFT sales in question don’t meet the Howey test — adding that the enforcement action pushes the SEC into unfamiliar territory, considering it marks the first such enforcement regarding an NFT issuer. 

Impact Theory was ordered to pay $6.1 million in penalties, and agreed to a cease and desist of its existing business practices, the SEC said. 

The company launched NFTs in the fall of 2021, and allegedly “encouraged potential investors” to see the purchase of their Founder’s Key’s NFTs as an investment in the business, spurring on the SEC’s action.

Both Peirce and Uyeda said American adults should be able to approach their finances as they see fit, but that they both understand where the Commission was coming from. 

“We do not routinely 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 joint statement said.

The SEC worried about the NFT buyers not understanding where their money was going, and it raised a “legitimate concern,” though both Peirce and Uyeda say that it “is not a sufficient basis to pull the matter into our jurisdiction.”

Both Commissioners raised roughly nine questions around the enforcement action and the larger NFT landscape.

NFTs are not a one-use case asset class, they said, and different NFTs have a variety of use cases. There could, as a result, need to be fresh SEC categories to determine how securities laws apply to both offers and sales, they said. 

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They wonder therefore if there needs to be categories used by the SEC to figure out how current securities laws apply to both offers and sales. 

And since the SEC ordered Impact Theory to destroy NFTs in its possession, the two Commissioners wonder what type of precedent has been set.

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