SEC is Coming For NFTs!! Which Projects Are Next?!

The crypto bear Market has been brutal And it seems it won't be over until Every crypto Niche has crashed it seems That nfts are the last dominoes to fall In this regard and it appears that these Dominoes have just been pushed over by The SEC that's because the regulator Recently announced its first lawsuit Against an nft project which could Foreshadow similar lawsuits and an Outcome that could set a concerning Precedent for expensive jpegs today We're going to tell you everything you Need to know about the lawsuit including Why it's so significant what it alleges And how its outcome could impact more Than just the nft niche I want to start by explaining why the Sec's nft lawsuit is so significant if You've been keeping up with our coverage Of crypto regulations you'll know that Nfts haven't been included in most of Them in other words nfts were basically The only crypto Niche that wasn't facing Regulatory scrutiny if you've watched Any of our videos about the financial Action task force or fat F you'll know That most crypto regulations have their Roots in its so-called recommendations You'll also know the reason why it Emitted nfts from these recommendations Is because it doesn't consider them to Be virtual assets obviously this makes No sense and it makes even less sense

Considering that there seems to be lots Of nft related crime for context the fat F's primary purpose is to fight illicit Financial activity at least on paper Logically then you'd think they'd be Interested in scrutinizing nfts but well Apparently not if you watched our video About nft related crime you'll know that The fataf's apparent lack of oversight Of nfts could be related to their Similarity to the Fine Art Market For reference the Fine Art Market is Quite shady and unregulated and up to 20 Percent of all fine art transactions Could be related to illicit Financial Activity but of course this is okay Because Fine Art is primarily bought and Sold by the people in power anyway Conspiracy theories aside another reason Why the fat F and Global Regulators have Ignored nfts is because they're not Direct competitors to the existing Financial system for those unfamiliar The fat F's purpose in practice is to Protect the existing Financial system And that means cracking down on crypto Whatever the reason the fact that nfts Were left out of most crypto regulations Meant that they were theoretically a Safe haven for the bear market now at First glance this seems to have played Out for the most part BTC and eth have Crashed more than most major nft Collections in percentage terms upon

Closer inspection however you realize That most major nft collections are Priced in eth which means that they've Technically seen larger losses in Fiat Terms as a fun fact this is why some Prolific crypto investors like real Visions Raul pull hold nfts they're a Leveraged bet on eth's price anyways Even though nfts have seen large losses In Fiat terms you might have noticed That there wasn't really an FTX type Moment in this particular crypto Niche Quite the contrary there have been lots Of bullish updates for nfts new Collections like Bitcoin ordinals coming Out and even positive regulatory news The headline that comes to mind in this Regard dates from back in March when the SEC gave approval to a blockchain Project to issue tokenized art nfts this Was not only seen as bullish for the nft Niche but also bullish for asset Tokenization in general something that Institutional investors have been Pushing for late last month however the SEC made an announcement that flipped The nft sentiment from bullish to Bearish the regulator announced its First ever lawsuit against an nft Project as always it's the details of This lawsuit that have everyone Concerned they could be applied to other Nft collections so the nft collection That the SEC targeted was Founders Keys

Created by impact Theory a Californian Media Company behind a YouTube channel Run by Tom bilyu the co-founder of Quest Nutrition a food company that focuses on High protein products ever heard of Those Quest Bars anyhow the lawsuit Begins by revealing that the SEC and Impact Theory have already reached a Settlement meaning that the case is Closed I'll come back to that later all I'll say for now is that two SEC Commissioners dissented against the Sec's decision to sue impact Theory more On that later too now the lawsuit goes On to explain that impact Theory raised Almost 30 million dollars with its Founders Keys nft collection in 2021 not Bad for a Year's work in all seriousness The authors note that some of these nft Sales were made to U.S residents hence Why the SEC is involved the authors take Issue with the fact that impact Theory Had said that it would use the proceeds From these nft sales for development to Bring on more team members and to create More projects because of this the Authors determined that these nfts were Sold as unregistered Securities now to Refresh your memory a security is any Asset that meets the four criteria of The Howie test you buy it using money The price action is the same for Everyone who bought everyone who bought Has an expectation of profit and this

Expectation of profit is coming from an Identifier third party most cryptos meet The first three criteria including most Nfts the fourth Criterion is usually the Deciding factor some cryptos and nfts Don't have a third party that you can Point to which is creating an Expectation of profit in this case the SEC alleged that impact theory was this Third party and because impact Theory Didn't register with the SEC before Selling the founders Keys nfts it Therefore violated Securities laws on That note the authors specified that Quote neither impact Theory nor its Securities have ever been registered With the Commission in any capacity Now this ties into the facts of the case From the sec's perspective The authors explain the specifics of the Nft sales before pointing out that Impact Theory had been promoting the nft Sales on its socials leading up to the Sales Notably they say that the nfts were Advertised as being a stake in the Company the authors provide a list of Quotes from Impact Theory to back up Their claims such as quote trying to Build the next Disney quote this is like Being offered to invest in a booming Company when their series a and quote This is an opportunity that has never Been there it's like handing twenty

Dollars to Mark Zuckerberg in his dorm Room From the sec's perspective this is Analogous to well confessing to a murder What's interesting is that the authors Seem to take issue with the fact that Impact theory used the proceeds from its Nft sales to fund its development they Specify that the company quote used a Portion of those proceeds to pay certain Vendors providing Services related to Impact Theory's business this is Consistent with something the SEC has Hinted at in other lawsuits and that's That it doesn't like any crypto projects Or companies that raise money before They've reached their final form so to Speak that said the SEC doesn't seem to Like anything that implies there will be Future gains or improvements of any kind Now what's crazy is that impact Theory Made almost another million dollars in Secondary sales of its Founders keys Nfts This is because the company had set a 10 Royalty on all secondary Market trades Speaking of which this royalty capacity Of nfts seems to be coming under Scrutiny anywho the authors reiterate That impact theories nfts are on Registered Securities and that its sales Were not approved by the SEC nor did the Company seek permission prior to these Sales as such the nft sales were illegal

The authors note that the punishment for This crime is to pay back all the money What's fascinating is that the SEC Appears to have accepted impact Theory Settlement offer because the company had Tried to refund Founders Keys nft Holders by buying back the nfts the Authors estimate that the company spent Almost 8 million dollars worth of eth on These BuyBacks the authors also note That as part of the settlement agreement Impact Theory agreed to delist all Founders keys nfts in its possession or Control to publicly announce that They've settled with the SEC And to remove the 10 royalty on any Outstanding nfts all within 10 days of The order in addition impact Theory Agreed to work with the SEC to refund Any remaining Founders Keys nft holders As part of the punishment of paying back All the money oddly enough it seems that The SEC didn't ask for the full amount The financial punishment amounts to a Little over six million dollars This relates to impact Theory's press Release about its settlement with the SEC which you'll recall was one of the Settlement conditions the company Published the press release on the same Day as the SEC published the settlement And it starts by saying that it's happy To have settled with the regulator at The same time though the press release

Notes that the company is disappointed About the sec's attitude towards the Crypto industry lately that is a bit of An understatement chairman Gary Gensler And the Gang have been on an outright Witch Hunt literally everything is an Unregistered security In any case the press release notes that Impact Theory hopes the questions posed By the dissenting SEC Commissioners will Be answered more about those in a moment The press release goes on to make a Peculiar claim and that's that impact Theory is committed to ensuring that all Future digital assets issued by the Company are quote Collectibles with Utility now the way this is worded Almost makes it sound like a promise not To promote its future nft projects Funnily enough the press release then Starts effectively promoting another Project that impact theory is working on Which reportedly leverages nfts the Press release even provides examples of Praise that the project has received and Notes that impact Theory promises to Expand the project in the near future But back to The sec's Descent on the Same day that the SEC published the Settlement and impact Theory published The press release SEC Commissioners Hester Pierce and Mark uyeda published a Statement opposing the outcome and Posing nine questions to their

Colleagues asking for clarification Hester and Mark argue that impact Theory's nft sales did not constitute an Unregistered Securities offering despite The company's promotional activities Specifically quote the handful of Company and purchaser statement cited by The order are not the kinds of promises That form an investment contract The commissions explained that quote 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 they also argue that the Punishment was excessive The Commissioners go on to underscore The fact that this is the sec's first Enforcement action against an nft Project and this raises quote many Difficult questions as a result they Blast the SEC for not answering these Questions sooner so let me ask Gary Himself Hi Gary it's uh good to have you here Hello guy thanks for having me on uh the Pleasure I'm sure is all yours thanks Gary uh okay let's get started Um uh question one uh there is no Universal definition of nft in large Part uh because there are so many Different categories of nfts so could The SEC provide definitions for nfts and

Its different categories so that crypto Projects and companies know when they're Breaking U.S Securities laws no because All nfts are unregistered Securities Come in and register I won't buy Okay uh question two uh could the SEC Provide regulatory guidance for crypto Companies or projects wanting to issue Or offer nfts the guidance is already There the regulations are clear don't Crypto Bros know how to read Right okay uh question three Um should U.S politicians propose new Laws to address nft regulation that's Not required the SEC already has Authority over nfts the only thing it Needs is money Okay uh question four are securities Laws really appropriate for nfts is There some other regulator perhaps There's better position to police this Particular crypto Niche another Regulator like who the cftc they paid You to ask this question didn't they Those snakes no they they didn't Gary Anyway Um question five uh if the SEC is the Appropriate regulator for nfts then What's the registration process Shouldn't it be tailored specifically Towards nfts look I already approved That other fractionalized art nft Application okay that's enough kindness For one year okay thanks

Um question six uh does the recent Enforcement action mean that you'll Start going after other nft projects uh Will you at least give them a heads up That you're coming Gary not telling but You'll know when I publish another Carefully scripted video about Protecting investors from their Dangerous asset class hmm can't wait uh Question seven uh what restrictions Should be put on secondary nft sales if Any secondary sales should not be Allowed because they could allow retail Investors to make money if they're Allowed to make money how will they be Protected I see Okay uh question eight Um the recent settlement required the Nft issuer to destroy the nfts in its Possession so uh what kind of precedent Does that set for future nft cases will Will they have to destroy their nfts too They will do whatever Wall Street tells Me to tell them to do that's how Regulations work guy great thanks right Last question Um the recent settlement uh required the Nft issuer to eliminate the 10 royalty From secondary sales so does this mean That royalties on nfts go against the Sec's rules look I already told you that Investors need to be protected so no no Royalties I am the only royalty here Okay uh well thanks Gary I uh I

Appreciate your time no problem guy uh May I say one thing before I go of Course screw you Charming anyhow look Jokes Aside Wall Street does seem to have an interesting History with the SEC and you can learn More about that by checking out our First video about the SEC using the link In the description so this brings us to The big question and that's why the Sec's nft lawsuit is so significant and Not just for nfts Well for starters the settlement sets Precedent to go after other nft projects It's eerily similar to kraken's Settlement with the SEC for staking and The sec's subsequent lawsuit against Coinbase Those of you who follow nfts will know That impact Theory isn't the only Company that's been promoting its nfts In a way that invites an SEC lawsuit Objectively speaking the founders Keys Nfts collection probably ranks much Lower on the promo Spectrum compared to Most other nft collections the bigger Issue though is the sec's sudden focus On the nft niche as some of you will Know most of the fat F's recommendations Seem to have their roots in U.S Regulations the crypto recommendations In particular seem to have come Downstream from crypto policies proposed By entities like the U.S treasury and

The SEC And that reminds me of our recent video About the treasury's proposed crypto tax Rules if you saw that video you'll know That nfts are one of the crypto niches It's singled out to be fair the focus of The scrutiny was around nft marketplaces But it nonetheless highlights a change In tone about nfts this all four Shadows A change in tones About nfts from the Fat F which could mean a change in turn About nfts from other Regulators around The world this means that nfts could Soon start receiving just as much Scrutiny as crypto projects The difference is that nfts are not Nearly as liquid as cryptos in plain English this means that nft prices could Fall further and faster in response to Crypto regulations compared to fungible Coins and tokens this begs the question Of why entities like the treasury and The SEC have suddenly changed their tune On nfts well one possible answer is Because of digital ID or even just asset Tokenization in general as you might Have heard governments around the world Are in the process of rolling out Digital IDs and if you watched our video About the financial system that the Central banks Envision you'll know that They want every single asset in Existence to be tokenized on a private Permissioned blockchain controlled by

The government in such a system you will Own nothing and be happy Now whereas fungible cryptocurrency Coins and tokens are competitors to Fiat Currencies Banks and asset managers Non-fungible cryptocurrency tokens could Be seen as competitors to the centrally Controlled tokenized asset systems that Governments and central banks are trying To roll out around the world take a Second to consider that a robust Decentralized digital ID would likely be A non-transferable nft of some kind it's Safe to assume that governments don't Want to lose control of the identity of Their citizens any more than they want To lose control of their National Currencies now if this theory is correct Then chances are we'll see evidence of It in upcoming nft regulations which are Reportedly already in the works in some Countries you can rest assured that We'll be reading through these Regulations and letting you know exactly Why it is that nfts are facing so much Scrutiny And that's all for today's video folks So if you found it insightful let me Know by Smashing that like button if you Want to keep getting more crypto Insights subscribe to the channel and Ping that notification Bell if you want To help others get some insight into This particular topic share this video

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