Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

SEC charges Impact Theory for unregistered offering of NFTs

sec.gov

Post reply on HN
Print view View original

111–120 of 257 posts

Re: SEC charges Impact Theory for unregistered offering of NFTs

#111

Post by wpietri »

Animats wrote: post #107

NFTs were supposed to be an end-run around the Howey Test. ICOs were clearly securities offerings, and the SEC shut down most of those. NFTs were specifically designed to evade that test, by claiming they were really "digital artworks". This one, though, was clearly marketed as Make Money Fast. The Securities Act of 1934 has a "duck test" definition of security - if it is marketed, bought, sold, and held as a money-m…

I really appreciate the way the Howey Test matches the regulatory purpose, its operationalist approach to the question. That it's stood up to nearly a century of scammer "innovation" is admirable.

It does have the drawback of requiring some interpretation, some thought. But I think that's necessary. Rather than requiring regulators to keep creating ever-broader definitions of "security", patching every scammer hole, it throws the burden back on those wanting to innovate. They're supposed to stop and say, "Well what are we really up to here?" And I think that's where the burden should be.

My only real grumble is that the SEC gave the cryptowhatever world too much rope. I wish they had been faster off the mark, so there was less nonsense. But even there I can't complain too much. Generally I want regulators to be cautious squashing new things.

Re: SEC charges Impact Theory for unregistered offering of NFTs

#112

Post by mmastrac »

capableweb wrote: post #109
carabiner wrote: post #101

NFT was just all fake volume... Sell an NFT to yourself for $1m, boom, you now own a $1m asset. Then list it for $100k for the next sucker.

How do you sell yourself a NFT to yourself if you don't already have $1,000,000? Something is clearly missing from your line of thinking here.

Bitcoin loans? You just need it long enough to make a wash trade.

Re: SEC charges Impact Theory for unregistered offering of NFTs

#113

Post by TacticalCoder »

carabiner wrote: post #101

NFT was just all fake volume... Sell an NFT to yourself for $1m, boom, you now own a $1m asset. Then list it for $100k for the next sucker.

> NFT was just all fake volume... Sell an NFT to yourself for $1m, boom, you now own a $1m asset.

aka "wash trading" (which predates NFT and crypto):

https://en.wikipedia.org/wiki/Wash_trade

Re: SEC charges Impact Theory for unregistered offering of NFTs

#114

Post by junofan »

carabiner wrote: post #101

NFT was just all fake volume... Sell an NFT to yourself for $1m, boom, you now own a $1m asset. Then list it for $100k for the next sucker.

How does that work for larger collections? If there’s a market, won’t the market find a price?

Re: SEC charges Impact Theory for unregistered offering of NFTs

#115

Post by wpietri »

capableweb wrote: post #109
carabiner wrote: post #101

NFT was just all fake volume... Sell an NFT to yourself for $1m, boom, you now own a $1m asset. Then list it for $100k for the next sucker.

How do you sell yourself a NFT to yourself if you don't already have $1,000,000? Something is clearly missing from your line of thinking here.

There seem to be a lot of people out there with paper cryptocurrency gains who are happy to use them for absolutely anything that will make more money.

Re: SEC charges Impact Theory for unregistered offering of NFTs

#116

Post by IanCal »

Animats wrote: post #107

NFTs were supposed to be an end-run around the Howey Test. ICOs were clearly securities offerings, and the SEC shut down most of those. NFTs were specifically designed to evade that test, by claiming they were really "digital artworks". This one, though, was clearly marketed as Make Money Fast. The Securities Act of 1934 has a "duck test" definition of security - if it is marketed, bought, sold, and held as a money-m…

> The Securities Act of 1934 has a "duck test" definition of security - if it is marketed, bought, sold, and held as a money-making thing, it's a security

That doesn't seem right. You're missing a really fundamental part of what makes a security a security. Let's steal the cut phrase from investopedia

> an investment contract, for the purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third part

Investing in a common enterprise is a really key part.

A random beeple NFT wouldn't meet that definition, even if marketed as "this hot new thing that's only going up in value". The SEC isn't stopping people buying daft things.

> The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts

This is where it differed from many other NFTs that aren't securities.

Re: SEC charges Impact Theory for unregistered offering of NFTs

#117

Post by andy81 »

capableweb wrote: post #109
carabiner wrote: post #101

NFT was just all fake volume... Sell an NFT to yourself for $1m, boom, you now own a $1m asset. Then list it for $100k for the next sucker.

How do you sell yourself a NFT to yourself if you don't already have $1,000,000? Something is clearly missing from your line of thinking here.

The normal method is to generate a collection of a 10k NFTs and sell back and forth between your own accounts for $100 each.

The hope is that some sucker will buy them for $10, thinking that it's a bargain.

Re: SEC charges Impact Theory for unregistered offering of NFTs

#118

Post by dumbfounder »

Animats wrote: post #107

NFTs were supposed to be an end-run around the Howey Test. ICOs were clearly securities offerings, and the SEC shut down most of those. NFTs were specifically designed to evade that test, by claiming they were really "digital artworks". This one, though, was clearly marketed as Make Money Fast. The Securities Act of 1934 has a "duck test" definition of security - if it is marketed, bought, sold, and held as a money-m…

Care to offer some evidence of that? I haven't heard that and I am in the vertical. I agree that Impact Theory was selling securities, and I think it's pretty clear. But bored apes a security? I don't think many share that opinion. How is it any different than art or pokemon cards? People buy both all the time with the expectation they go up in price.

Re: SEC charges Impact Theory for unregistered offering of NFTs

#119

Post by dcolkitt »

evilantnie wrote: post #20
jermaustin1 wrote: post #7

The concept of NFTs stored on a distributed ledger makes sense to me especially for the shitty games that sell skins. The idea they have some sort of value and can be considered a security, doesn't really. It is no different than the current in-game marketplaces that sell/resell skins from whatever game has skins this week. At what point does a thing you buy or sell become a security? Are baseball cards a security? S…

From what I'm reading here, the company misled "investors" by attaching the NFT to ownership in the company, which would be considered a security. "The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts." When I purchase a baseba…

> When I purchase a baseball card, I do not have the expectation that there is any additional value attached to the baseball card beyond what the collector's market will pay.

What about music royalties rights? Those are almost always purchased with expectation of profit. Those are even explicitly marketed on the basis of how big an artist is going to be. Yet the SEC does not consider them securities

https://www.sec.gov/Archives/edgar/data/1490161/000104746910....

Re: SEC charges Impact Theory for unregistered offering of NFTs

#120

Post by gamblor956 »

junofan wrote: post #110
gamblor956 wrote: post #51

Earlier quoted context omitted.

Does buying a baseball card in 2023 now entail ownership in Fanatics or Panini? If not, then it's not even remotely the same thing as what goes on with non-fungible tokens like the one here.

I don’t think these NFTs give ownership rights either. Reading the SEC order, it sounds like the reasonable expectation of a profit was the issue.

The NFTs did purport to give ownership rights in the business profits of the NFT, as represented by the value of the NFT increasing specifically because of the labor of others acting to increase the value of the NFT.

And that is part of what makes them completely different from baseball cards. Even if the value of the cards are dependent on the labors of others, with the baseball cards, the laborers (i.e., players) are not performing that labor with the intent of increasing the value of the cards; the value of the increase in the cards, if any, is wholly coincidental.

Post reply on HN