"Imagine that you could’ve gotten in on Disney when they were doing Steamboat Willie!" Imagine that indeed. The offer was a promise made by Los Angeles-based entertainment outfit called Impact Theory in 2021. Except that instead of buying shares in the future House of Mouse, you were getting in on the NFTs sold in one of three tiers: Reckless, Heroic, or Legendary. The whole thing sounds pretty dumb but for the fact that Impact Theory somehow raised $30 million in Ethereum selling these things.
The SEC was not amused by all this and, in a new frontier in the crypto wars, announced the company had broken the law by conducting an authorized securities offering. Is that fair? Your conclusion will probably depend on whether or not you view the crypto industry as a scourge that should be burned to the ground.
This is the view of SEC Chair Gary Gensler, who not only put a stop to the sale of the Impact Theory NFTs, but dinged the seller $6.1 million and forced it to destroy all the Reckless, Heroic, and Legendary pictures still in its possession. The ruling was not unanimous, however, as two of the SEC's five commissioners wrote a dissent complaining that "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."
For my part, I think the question of whether Impact Theory broke the law is a toss-up. You can make a case either way that the NFTs represented an investment contract under the Supreme Court's long-standing four-part Howey Test. But most of all the lawsuit made me ask myself, "Doesn't the SEC have anything better to do?"
Impact Theory was one of hundreds of outfits selling NFTs during the height of the last crypto bubble, and its offering, which went for less than three months, was no more or less dumb than most of the others. The firm also made a halfhearted effort to actually offer the buyer something in return for their money—in the form of a membership card to some D-list entertainment.
I strongly suspect many of the Reckless and Heroic buyers were already crypto gamblers who purchased the NFTs as a lark rather than as a serious investment. Meanwhile, the handful who weren't were likely the sort of people who would be just as soon to blow their money on horse racing or time shares or some other folly.
It's also worth asking how much the SEC is achieving by pursuing these sort of legal actions today—it could have just blasted a warning two years ago when people were still buying NFTs. There are more pressing issues facing investors and the market right now.
Yet again, the Impact Theory case suggests the SEC's first priority is politics rather than policy—and that Gensler would rather audition for his next job in the Biden Administration rather than undertaking more serious tasks. Like investigating how the SEC missed FTX, Terra, and the other multibillion-dollar frauds that happened on his watch.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
