SEC Faces Backlash Over Flyfish Club NFT Settlement, Critics Call It Overreach
The recent SEC settlement with Flyfish, an NFT-based company, generated a lot of criticism from two commissioners who believed that the agencys enforcement actions were just stifling all innovators. Flyfish is world-famous for selling NFTs to grant VIP membership access to its not-yet-opened New York club.
However, the company accepted a $750,000 SEC settlement as it did not either confirm or deny the conclusions. Instead, the settlement raised a lot of questions, with some pointing out whether its NFTs could be considered as securities.
Flyfishs NFT Sales and Allegations
Between August 2021 and May 2022, Flyfish raised $14.8 million through the sale of 1,600 NFTs, which were priced between 2.5 ETH and 4.25 ETH. They used these NFTs to position them as digital membership passes and investment opportunities. They called the NFTs membership tokens and investment in the restaurant, and as a result, they were directly or indirectly capitalizing the restaurant.
Meanwhile, Flyfish raked in some $2.7 million of royalties from sales of the NFTs on secondary markets-a fact underscoring the investment aspect at issue. Under the terms of the settlement, Flyfish must destroy remaining NFTs, cut off royalties, and send notice of their cessation to secondary marketplaces. The $750,000 fine will be paid in installments, coupled with public notices of compliance.
However, two SEC commissioners were not in agreement, stating that the NFTs were utility tokens giving access to restaurant seats, not securities. They equated it with the situation of selling limited prints of which the intention to resell does not qualify them as securities. They characterized the SECs actions as overreach, creating a dangerous precedent for the use of NFTs in the arts.
Flyfishs NFT experiment points to a shift in the balance of power between law enforcement and experimentation in the NFT space. On the one hand, the SEC wants to secure investors from coming risks, but on the other hand, critics assume that the commissions activities are in reality stopping NFT developers from using their creations in other sectors without being afraid of regulatory reprisal.
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Read more: https://www.tronweekly.com/sec-faces-backlash-over-flyfish-nft-settlement/
Text source: TronWeekly
