As popular as the NFT market has become in the last few years, it is still in a complicated place when it comes to its regulatory status. Because NFTs are so new and the limits of their use have not been fully defined, regulators around the world are still figuring out what to do with them.
Well, one online casino developer in the United States was recently contacted by regulators regarding its NFT dealings. According to reports, securities regulators in Alabama and Texas ordered the casino to stop selling NFTs due to claims that it was selling unregistered securities.
Trouble With the Law
The casino in question is called the Sand Vegas Casino Club and was founded in Cyprus but has operations in the United States. As per the reports, the casino had offered 11,100 NFTs for sale. The ‘Gambler’ and ‘Golden Gambler’ NFTs were advertised as giving their users a share of casino profits.
The co-founders of the casino, Martin Schwarzberger and Finn Ruben Warnke, had told investors that their funds would be used for the development of metaverse-based casinos. In return, they were promised profits of up to $81,000 per year.
Unfortunately, this was not to be so as securities regulators in two US states, Alabama and Texas, sent cease-and-desist letters to the company. According to the regulators, selling these NFTs to represent ‘shares’ in the company constituted the selling of unregistered securities and defrauding the public.
Since the notice was sent, the company has ceased all promotions of the NFTs and OpenSea has confirmed that the company has disabled sales on its profile. Despite this, it has been estimated that about 4,200 of the Gambler NFTs and 624 of the Golden Gambler NFTs were sold and how the buyers will be compensated is still up in the air.
While the metaverse-based casinos might not be moving forward, the company does plan to continue with the development of regular online casinos.
NFTs As Shares?
NFTs’ place within the global regulatory framework is a bit tricky. Things such as art and virtual experiences can be sold as NFTs with no issue but selling what amounts to shares in a company via NFTs is very new territory.
Crypto lovers might remember the period when Initial Coin Offerings (ICOs) were all the rage in the industry, bringing in billions for blockchain companies. Years after the ICO craze has died down, regulatory bodies in the US are still prosecuting many of the organizers for selling unregistered or fraudulent NFTs.
Famously, the SEC in the United States had a legal dispute with Telegram over its TON token, which the Commission claimed was an unregistered security. The pattern has remained clear over the years; any digital asset sold as a share of security has to be registered, and this includes NFTs.
It is possible that NFTs will become a form of securities sold openly in the future but for now, it seems regulators aren’t having it.