The U.S. Securities and Exchange Commission (SEC) has focused an offering of non-fungible tokens (NFTs) for the first time, focusing on the entertainment industry Influence Concept. Influence Concept has been charged by the SEC of raising $30 million through unregistered NFTs and using the Howey analysis to classify them as securities.
The company had advertised the tokens as business investments and made income guarantees if the businesses had been successful. Influence Concept has been ordered by the SEC to pay fines totaling more than $6.1 million.
But not everyone at the SEC agrees with the enforcement action. In their dissent, Commissioners Hester Peirce and Mark Uyeda questioned the wisdom of applying the Howey evaluation to the nascent digital asset class and argued that the regulatory agency should have offered guidance on regulation prior to taking such a radical measure.
They acknowledged concerns about the hype that would encourage people to invest heavily in NFTs without comprehending their utility or potential profitability, but they also contended that these concerns did not suffice to support the SEC’s action. According to them, Influence Concept’s promises were insufficient to qualify the NFTs as funding contracts.
Influence Concept had already started the applications for repurchase, offering to buy back the NFTs for the whole amount of $7.7 million in ether. The dissenting commissioners noted that Influence Concept had already performed the typical remedy for a registration breach, which is a rescission offer. They questioned whether an enforcement motion was necessary in light of these facts.
The decision establishes a significant precedent in the developing world of NFTs and raises numerous issues regarding how these digital assets should be handled.
