State Securities Regulators Order Virtual Casino Company to Stop Selling NFTs

NFTs have seen renewed interest from investors, and the Securities and Exchange Commission has yet to offer formal guidance on whether they might qualify as securities in certain circumstances.

NFTs have seen renewed interest from investors, and the Securities and Exchange Commission has yet to offer formal guidance on whether they might qualify as securities in certain circumstances.

Securities regulators in the US states of Texas and Alabama on Wednesday ordered an online casino developer to stop selling non-fungible tokens (NFTs), alleging the company was illegally offering unregistered securities and defrauding the public.

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Cyprus-based Sand Vegas Casino Club and co-founders Martin Schwarzberger and Finn Ruben Warnke allegedly offered 11,111 NFTs as part of a ‘high-tech fraudulent securities offering’ to raise money to build casinos virtual in the metaverse. They also incorrectly told potential buyers that the tokens were not securities, the Texas State Securities Board said in a statement.

Sand Vegas promised buyers of its NFT Gambler and Golden Gambler that they would share virtual casino profits, providing proceeds of up to $81,000 a year, regulators said.

Schwarzberger told Reuters in an email that Sand Vegas was working to comply with the Securities and Exchange Commission (SEC) as well as state regulators.

“We are absolutely confident that we can resolve this situation and perhaps even pave the way for other NFT projects,” he said.

The cease and desist order appears to be the first of its kind related to Internet-based virtual environment platforms, colloquially known as the Metaverse. It also marks a new frontier for US authorities seeking to crack down on NFTs, blockchain-based tokens that represent assets such as a piece of digital art. Last month, two men were arrested and charged with defrauding purchasers of NFTs worth $1.1 million.

Although the latter case is relatively small, state actions often attract the interest of federal regulators. NFTs have seen renewed interest from investors, and the Securities and Exchange Commission (SEC) has yet to provide formal guidance on whether they might qualify as securities in certain circumstances.

A spokesperson for OpenSea, the largest NFT marketplace, said the company has disabled the buying, selling and transferring of Sand Vegas tokens because the collections violate the platform’s terms of service.

Joe Rotunda, director of enforcement at the Texas State Securities Board, said the regulator has spotted a number of securities offerings in the metaverse.

“It’s a hot zone,” he told Reuters. “We are coordinating across states to investigate offers and plan enforcement action if necessary.”

Laura J. Boyer