SEC’s first NFT enforcement action should give advisors pause, experts say

investmentnews.com:

Financial advisors should wait for regulations to emerge around crypto assets called non-fungible tokens before recommending them to clients, experts said following the SEC’s first enforcement action involving NFTs.

The Securities and Exchange Commission ordered Impact Theory, a Los Angeles media and entertainment company, to pay $6,103,913 to settle charges that it sold Founder’s Keys in the form of NFTs from Oct. 13, 2021, to Dec. 6, 2021, without registering them as securities.

The agency said the firm raised almost $30 million in a cryptocurrency known as Ether through sales of KeyNFTs to hundreds of investors. Buying the NFTs was portrayed as an investment in the business — which aspired to be “the next Disney” — that could result in a profit for the purchasers, according to Monday’s SEC order. That made the NFTs investment contracts, the SEC alleged.

The enforcement action was the SEC’s first related to an NFT. The products are tokens created through blockchain technology with unique characteristics that usually depict real-world assets.

The case demonstrates that financial advisors should tread carefully around NFTs, said Ric Edelman, founder of the Digital Assets Council of Financial Professionals.

“This is further indication that NFT trading by advisors is not ready for prime time,” said Edelman, founder of Edelman Financial Engines. “There is lack of clarity regarding the regulatory status of NFTs and the compliance procedures advisors need to follow in order to operate in a proper way.”

The SEC has been filing cases against cryptocurrency providers and platforms for months. With the Impact Theory case, it’s expanding into the NFT space.

That activity should give advisors pause, said Brandon Zemp, CEO of