Commissioners Hester Peirce and Mark Uyeda of the US Securities and Exchange Commission (SEC) criticized the agency for its charges against Flyfish Club. According to a cease and desist order issued on September 16, the NFT-themed Flyfish Club restaurant was fined $750,000 for selling 1600 NFTs to US investors without registering as securities. However, the SEC commissioners justified it as a way for the NFT-themed restaurant to sell memberships, and thus, it didn’t trigger securities laws.
Story Behind Flyfish’s NFTs
Flyfish Club is the brainchild of VCR Group and is a members-only restaurant nestled in the heart of Manhattan’s Lower East Side. During August 2021 and May 2022, it conducted an unregistered offering of crypto asset securities at two price points. The Flyfish NFT was priced at 2.5 ETH (~$8,400), and the Omakase NFT was priced at 4.25 ETH (~$14,300) and generated approximately $14.8 million.
In an interview, Flyfish’s principal revealed that the intent behind its utility-based NFT project was to build a large business. It had plans to enlarge the restaurant with multiple clubs, ancillary offerings, and other social experiences.
Unfortunately, the SEC alleged it as an unregistered sale, claiming that Flyfish led investors to expect profits from entrepreneurial and managerial expertise. In return, the club did not deny the accusation and agreed to pay $750,000 for the settlement. Also, the club consented to destroy all the remaining Flyfish NFTs in its possession and not accept future royalties from the sales of NFTs.
UK Bill to Recognize Bitcoin and NFTs as Personal PropertyHowever, the SEC commissioners slammed the agency for the allegations imposed on Flyfish Club. As per the statement filed by them,
The NFTs here are utility tokens, not securities, and statements by the founders and NFT purchasers that a successful restaurant would cause the NFT price to rise do not change that.
The commissioners added that his enforcement action undermines trust in Chef SEC. Such allegations by the SEC are happening more commonly in the crypto sphere.
The Issue With Binance And Other NFT Projects
In the recent allegation, the SEC listed Binance’s crypto tokens as unregistered securities. This includes Axie Infinity (AXS), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND), and Decentraland (MANA). However, the SEC later stated that it did not refer to the assets but to the full set of contracts, expectations, and understandings for selling such digital assets.
Moreover, the SEC has pursued legal proceedings against the OpenSea NFT marketplace by issuing a wells notice. It claimed that the majority of NFTs on its platform are unregistered securities.
OpenSea has received a Wells notice from the SEC threatening to sue us because they believe NFTs on our platform are securities.
— Devin Finzer (dfinzer.eth) (@dfinzer) August 28, 2024
We're shocked the SEC would make such a sweeping move against creators and artists. But we're ready to stand up and fight.
Cryptocurrencies have long…
The US Securities Exchange Commission needs to soften its stance on the crypto tokens and other NFT projects. Until this happens, the market might witness more such claims from the agency, which could ultimately impact the overall market.
