Source: AdobeStock / Andrey Blokhin
In a show of dissent within the United States Securities and Exchange Commission (SEC), commissioners Hester Pearce and Mark T. Ueda have expressed their objections regarding the agency’s first NFT enforcement action against media firm Impact Theory.
The move marks the SEC’s first attempt at regulating the non-fungible token (NFT) market.
As previously reported, the US SEC has accused Impact Theory over its NFT launch, which the agency deemed an unregistered securities offering.
Impact Theory raised nearly $30 million through the sale of NFTs, claiming that the tokens represent a stake in its ambitious entertainment venture comparable to “building the next Disney.”
SEC commissioner disagrees with agency’s actions
Pearce and Ueda have argued that the NFT in question should not be subjected to the Howey analysis, a test traditionally used to determine whether a transaction qualifies as an investment contract.
The Commissioner emphasizes that classifying NFTs as investment contracts oversimplifies the diverse rights that NFTs can confer on digital and physical assets.
They further argued that the complexities inherent in the NFT landscape require careful consideration before enforcement action is taken, especially as this case may set a precedent for future NFT offerings.
The Commissioners’ statement raises fundamental questions about the appropriateness of applying existing securities rules to the emerging NFT market.
With the utility of NFTs ranging from art and collectibles to access tokens and more, navigating the regulatory landscape becomes challenging.
Pearce and Ueda’s concerns extend to the potential consequences of this enforcement action, specifically whether it implies a broader classification of NFTs as securities offerings and the potential impact on creators’ ability to earn royalties from secondary market transactions.
Impact Theory agrees to pay a $6.1 million fine
As part of the settlement with the SEC, Impact Theory agreed to a cease-and-desist order, a fine of more than $6.1 million, and the establishment of a Fair Fund to reimburse investors.
The media firm also committed to forgo any future royalties from secondary market NFT transactions, a decision that could have a major impact on the NFT creator community.
The dissenting approach from Commissioners Pearce and Ueda underscores the complex regulatory challenges surrounding the growing NFT ecosystem.
After declaring over 60 cryptocurrencies as securities, the US SEC is eyeing NFTs.