Do NFTs Ape Securities—or Preview Easier Disclosures?
Are NFTs (non-fungible tokens like the popular Bored Ape artwork) securities? The Securities and Exchange Commission’s first enforcement decision against an NFT would have you believe they are. But in the analog world, digital assets such as NFTs don’t fit cleanly into existing boxes for what is and what isn’t a security regulated by the SEC.
The August enforcement action hints at when and how the SEC will likely regulate NFTs in the future, and is likely only the opening salvo in a larger enforcement campaign against NFTs. NFT offerings that function as securities for investors will need to be registered or satisfy an exemption to avoid coming within the SEC’s crosshairs. Other regulators, such as states and foreign jurisdictions, are also proceeding apace with regulating cypto tokens and digital assets, such as NFTs.
SEC to Impact Theory: Your NFT Is a Security
The SEC’s enforcement action (and subsequent $6.1 million settlement) against Impact Theory LLC’s NFT offering claimed that the media and entertainment company’s sale of NFTs amounted to an offering of unregistered securities. Impact Theory raised about $30 million from several hundred investors, telling them that the capital raised would be put toward building its entertainment business.
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