I summarized the most important parts below:
1️⃣ Background Impact Theory is a company with a 70-year goal to ‘build the next Disney’. They have podcasts which reach 13 million people every month, a 3D blockchain-based alternate reality game, and an NFT. Through the sales of the NFT, they raised almost $30 million dollars. However, the SEC alleges that these were the sales of unregistered securities because investors were led to believe that they would profit if Impact Theory were to realize its goals. A settlement was reached, with the following agreed-upon terms: A. Payment of a $6.1 million dollar penalty B. A “fair fund” to return money to investors who had purchased an NFT C. The destruction of all NFTs in the team’s possession D. A published notice on the project’s social media E. The elimination of any royalties on all future secondary sales.
2️⃣ Q&A Highlights The following is a distillation and paraphrasing of the 3-hour long AMA given by the co-founder Tom: Q1: Why did you decide to ultimately settle instead of fighting this? “We would have likely spent twice the amount fighting a legal battle — one which could have given us a worse outcome. We would prefer to use these funds and time for the project instead. The settlement is called a neither-admit-nor-deny basis. This means that I neither agreed nor disagreed with the SEC’s takes.”
Q2: How should we view NFTs going forward? “We should view digital assets through the lens of something like a watch or trading card, where people collect them and get excited as more people care. Given a lack of clarity in this industry, people will quickly realize that they can’t be as adventurous anymore. Other creators in the ecosystem will likely be handicapped for a bit, but hopefully they follow us in the way they are building and will be thoughtful about the legislation that will be coming out.”
Q3: Many people have been claiming that this signifies that most NFT projects can or will be deemed as securities. Do you feel this is an accurate characterization? “The industry has reason to be concerned. The level of aggression from the SEC is high, and I doubt this is the last we will see of it. How do we get to a better level of regulatory clarity? The fact that there was a dissenting statement should give us encouragement that the SEC isn’t unanimous in how they want to pursue the issue.This means that we have an opportunity to point out where we want this to go. To a place where consumers and builders can feel good about it, and America can remain the home of global innovation.”
Q4: Why was one of the requirements for you to get rid of royalties? “I cant read their minds, but it seems that royalties could make the NFT look more security-like. It would be unwise for me to assume how the SEC will rule, but I will point everyone back to the dissenting questions.They get to the same kind of things that speak to royalties and how people are able to sell these things.A lot of these projects were done by artists who don’t know business. Things can get dicey fast, and people need to be careful”
Q5: What advice would you give going forward to people wanting to launch an NFT project? “This is my opinion, not a legal opinion. If I were giving advice to someone starting out, I would say to treat it like a business from day 1, and do not pre-sell anything.If you are going to do a web3 game, then build a game. Then when it is ready, go ahead and sell it. If you are only selling items with utility and they are available right now, and you don’t mention anything about the future — you are probably in ok shape.I would also make it clear to people that these are not investments, merely collectibles with utility”
3️⃣ The Dissent In the commission there are 5 people who vote on a given settlement or action. In this case, there was a split vote in which 2 dissented. The dissenters put out a write-up that feels encouraging for the industry, and it is full of questions which they feel the SEC itself needs to answer. The 9 questions are incredibly thoughtful, and I would recommend for anyone to go and read them. They are posted below for reference.
Overall, they address things such as:
- The impact of eliminating royalties on the nature o the asset.
- The precedent that forcing the company to destroy their own holdings may have on pieces of unique music or art in the future.
- If previous NFT offerings are securities offerings, how can existing projects come into compliance.
As Tom stated many times during the AMA, the SEC is not unanimous in their thinking.
Now is the time for us to help circulate our opinions and considerations to ensure that we may be able to achieve regulatory guidance that is not destructive to our industry — but rather, can provide the clarity necessary for projects to not have to be afraid of the specter of regulation looming over them.
Source: Slorg @SlorgoftheSlugs