Today, the SEC announced its first enforcement action against NFTs in a case that was settled by Impact Theory, the NFTs’ issuer.

The SEC said the NFTs issued by Impact Theory were unlicensed securities. The company agreed to a cease-and-desist order, paid $6.1 million in penalties, and agreed to destroy all of the NFTs in question still in its control. Impact Theory will also eliminate any royalties that it might have received from sales of those NFTs on secondary markets.

In 2021, the company sold three tiers of NFTs that it called Founder’s Keys. “Impact Theory invited potential investors to view the purchase of a KeyNFT as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts,” the SEC complaint says. Impact Theory said it was “trying to build the next Disney” and that the proceeds from the sales would be used for “development,” “bringing on more team,” and “creating more projects.”

“Now as we’re building out this IP, imagine that you could’ve gotten in on Disney when they were doing Steamboat Willie, and that’s how we think of the Legendary tier,” an Impact Theory team member said, according to the complaint. “That’s how we think of this whole first drop quite frankly.”

In May 2022, the SEC beefed up its crypto assets and cyber enforcement unit, listing NFTs as an area of interest. NFTs also figured in the insider trading case against OpenSea product manager Nathaniel Chastain.

It’s not clear whether the enforcement action means the SEC broadly views NFTs as securities offerings. The SEC complaint focuses on how the NFTs were marketed and how the proceeds would be used. Some NFT projects, such as NBA Top Shot, have said their products are more like collectibles; those NFTs aren’t marketed as a way to build IP for an entertainment company, and the Top Shot team hasn’t said that the proceeds will be used to develop the project.

Still, the NFTs in the Impact Theory didn’t generate a dividend for their owners, two SEC commissioners noted in a dissent to the action. “The handful of company and purchaser statements cited by the order are not the kinds of promises that form an investment contract,” wrote Hester Peirce and Mark Uyeda in their statement. They also listed a series of questions that the enforcement action raised, including about what kind of guidance to craft about NFTs as an asset class.

“This gives you a sense of the SEC’s strategy when it comes to crypto, pulling anything that’s crypto related into their jurisdiction,” says Hermine Wong, the former head of policy at Coinbase and a former SEC regulator.

There are still a lot of regulatory questions around crypto broadly, including who gets to regulate what. NFTs, a subset of the crypto world, became broadly popular in 2021. The tokens may do a number of things — allow entry to a members-only chatroom, for instance — but can also be viewed as a way of trying to make digital art valuable. NFT projects vary widely, but some promise royalties to artists every time they change hands.