US SEC Commissioner Opposes First SEC Sanctions Action Against NFT

Key Points:

• US Securities and Exchange Commission (SEC) commissioners Hester Peirce and Mark Uyeda opposed the Commission’s enforcement actions against the NFT.
• Part of the reason is that they disagree with the rules for applying the Howey test.
• The SEC is long overdue to address these issues and provide guidance as the NFT evolves.

US Securities and Exchange Commission commissioners Hester Peirce and Mark Uyeda objected to the Commission’s enforcement actions to treat the sale of NFTs as securities. They said, in part, they disagreed with the Howey test rules. The SEC did not have sufficient grounds to bring this matter into its jurisdiction.

Certain statements by the company and the buyer cited in the non-promising order constitute an investment contract. Even if NFT sales fully complied with Howey’s regulations, more than a series of events would be required to warrant enforcement action.

According to the trustees, as the first NFT settlement, this enforcement action raises many conundrums. The Commission should have addressed these questions long ago and provided guidance when the NFT began spreading. The SEC is long overdue to address these issues and provide advice as the NFT evolves. Discussing the NFT can now help the Commission handle the matter wisely.

Hester Peirce said that the NFT is not an asset class with a single use case and that different NFTs have many use cases, so the Commission may need a new category to determine how the law should be applied to securities for incentives and sales.

As previously reported, the SEC has accused Los Angeles entertainment company Impact Theory of issuing NFTs without registration, which is also the regulator’s first enforcement action against the NFT.

The Commission’s enforcement underscores the need for compliance and transparency in the evolving landscape of crypto assets and NFTs. It is one of the rare times the agency has noticed “interest” in this area.

In response to the allegations, Impact Theory agreed to a settlement with them paying fines of more than $6.1 million. In addition, the company will return the investment amount to the stakeholders and guarantee the destruction of the NFTs associated with the offering.

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